UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X)ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1997
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________to________
Commission file number 001-12910
Storage USA, Inc.
(Exact name of registrant as specified in its charter)
Tennessee 62-1251239
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
165 Madison Avenue, Suite 1300 38103
Memphis, TN (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (901) 252-2000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock $.01 par value New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of this registrant's knowledge, in a
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. ( )
The aggregate market value of the voting and non-voting stock held by
non-affiliates of the registrant was approximately $598,783,720 as of March 20,
1998, based on 15,578,113 shares held by non-affiliates of the registrant. (For
this computation, the registrant has excluded the market value of all shares of
its Common Stock reported as beneficially owned by executive officers and
directors of the registrant and certain other stockholders; such an exclusion
shall not be deemed to constitute an admission that any such person is an
"affiliate" of the registrant.)
27,700,428
---------------
(Number of shares outstanding of the
registrant's Common Stock, as of March 20, 1998)
DOCUMENTS INCORPORATED BY REFERENCE
Part II and Part III incorporate certain information by reference from the
registrant's 1997 Annual Report to Shareholders and from the registrant's
definitive proxy statement to be filed with respect to the 1998 Annual Meeting
of Shareholders.
<PAGE>
PART I
Item 1. Business
General
Storage USA, Inc. (the "Company") a Tennessee Corporation, was formed in 1985 to
acquire, develop, construct, franchise, and own and operate self-storage
facilities throughout the United States. The Company is the second largest owner
and operator of self-storage space in the United States. At December 31, 1997,
the Company owned 360 facilities containing 23.5 million net rentable square
feet and managed for others 34 (including 5 franchises) facilities containing an
additional 2.1 million net rentable square feet in 31 states and the District of
Columbia. The Company is structured as an umbrella partnership real estate
investment trust ("UPREIT") in which substantially all of the Company's business
is conducted through SUSA Partnership, L.P. (the "Partnership"). Under
this structure, the Company is able to acquire self-storage facilities in
exchange for units of limited partnership interest in the Partnership
("Units"), permitting the sellers to at least partially defer taxation of
capital gains. At December 31, 1997 and 1996, respectively, the Company had an
approximately 90.7% and 92.9% partnership interest in the Partnership.
The Partnership formed SUSA Management, Inc. ("SUSA Management") to
provide self-storage management to third parties and to engage in the retail
sale of locks, boxes and other move-related merchandise.
In 1996, the Company formed Storage USA Franchise Corp ("Franchise"), a
Tennessee corporation. The Partnership owns 100% of the non-voting
common stock of Franchise. The Partnership accounts for Franchise
under the equity method and includes its share of the profit or loss of
Franchise in Other Income and has a 97.5% economic interest in Franchise.
Effective January 1, 1997, SUSA Management transferred its management contracts
and its retail sales business to Franchise. As a result, SUSA Management had
immaterial revenue and expense in 1997.
The Company's primary business objective is to maximize shareholder value. The
Company plans to achieve this objective through a four-part strategy:
o internal growth through continued improvement in operating results at
owned properties,
o external growth through acquisitions,
o current investment for enhanced long-term returns through development, and
o the franchising of the Company's self-storage concept.
The Company believes that it is distinguishable from most of its competitors by:
o its balanced approach to increasing its profitability through a
combination of internal growth, acquisitions, and development,
o its emphasis on the hiring and training of skilled personnel as active
managers of its self-storage facilities,
o its management information systems, and
o its ability to attract senior management who will enhance the Company's
ability to define and execute its business plan.
Business Strategy
Internal Growth
The Company's internal growth strategy is to pursue an active leasing policy,
which includes aggressively marketing available space and renewing existing
leases at higher rents per square foot while controlling expense growth. The
Company's ability to implement its internal growth strategy may be evaluated by
examining the "year over year" results of the Company's same-store facilities
during 1997 and 1996. The same-store facilities include all properties that were
owned by the Company for the entire period of both comparison years. As such,
the same-store pool changes from quarter to quarter and year to year.
Development properties and expansions are removed from these groups to avoid
skewing the results. During 1997, the Company achieved same-store revenue and
net operating income ("NOI") growth of 5.7% and 8.7%, respectively, over 1996.
In 1996, as compared to 1995, the Company grew revenue and NOI 7.7% and 9.7%
respectively. The higher percentage increase in NOI over revenue growth reflects
the Company's controlled expense growth and use of positive operating leverage,
as expenses average 27.9% of rental revenues at the property level.
o Aggressive Leasing - The Company seeks to increase its revenues by
increasing the occupancy in its facilities through the use of sales and
marketing programs that are customized for each location by facility and
district managers who have substantial authority and effective incentives.
The Company develops a written marketing plan for each facility. The
Company utilizes yellow page advertising, site signage and location as the
primary means to advertise its services. The facility managers are trained
to market both phone-in and walk-in prospective tenants, with primary
emphasis placed on training managers to act as salespeople and to convert
prospective tenants into actual tenants. Emphasis is placed on conversion
from the initial telephone call to an on-site visit, and from the on-site
visit to a rental.
o Regularly Scheduled Rent Increases - The Company has historically
increased rents in all of its facilities at least once a year regardless of
the occupancy level. As a facility nears 100% occupancy, the Company
typically increases rents more frequently. The Company is typically
confident in its local competitive position, and tends to seek higher rents
more aggressively in appropriate unit-size categories than its competitors.
The Company believes the average rental rate per net rentable square foot
in its facilities is usually higher than the rental rates at its
competitors' facilities.
<PAGE>
o Trained Facility Managers - The Company carefully selects and thoroughly
trains managers of its self-storage facilities. Personality profiles and
personal interviews are used to screen applicants during the recruiting
process to hire outgoing, personable, sales-oriented people capable of
implementing the Company's programs. Training programs feature facility
operations and marketing manuals, sales and marketing programs, telephone
communication, computer systems, and daily facility operations (unit
rental, retail sales, facility maintenance, security systems and financial
duties). The Company's formal training programs are followed by on-the-job
training (supervised by a regional manager) and a three-step,
self-administered certification program. The Company conducts monthly
telephone surveys in which "mystery shoppers" hired by the Company call
each facility posing as prospective customers. These telephone calls are
recorded and graded by management for policy compliance and sales skills.
o Integrated Management Information Systems - To maintain appropriate
controls and enhance operational efficiencies, the Company has installed at
each facility computer systems with comprehensive facilities management
software. Weekly operating results are transmitted electronically from each
of these facilities to the Company's headquarters. These systems allow the
Company to closely monitor manager performance and market response to the
Company's rental structure.
External Growth
The Company's external growth strategy is designed to increase the number of
facilities owned by the Company either by acquiring suitably located facilities
that offer upside potential due to low occupancy rates or non-premium pricing,
or where the Company's operating strategy would enhance performance, or by
developing and constructing new self-storage facilities in favorable markets. In
pursuing acquisition opportunities, the Company seeks to add facilities in those
metropolitan areas in which the Company operates and selectively to enter new
markets that have desirable characteristics such as a growing population and a
concentration of multifamily dwellings. The Company intends to acquire or
develop facilities that have strong retail characteristics and are attractively
designed.
Acquisitions
Since the Company's initial public offering in March 1994 (the"IPO"), the
Company has purchased 317 self-storage facilities containing 20.4 million net
rentable square feet for an aggregate purchase price of approximately $1.027
billion. Management believes that there are several factors that favor its
acquisition policy:
o Fragmented Industry Ownership - The Company believes that there are
approximately 26,000 self-storage facilities in the United States with
approximately 1,015 million net rentable square feet. According to the
Self-Storage Almanac 1997-1998 edition, the 10 largest operators of
self-storage facilities managed approximately 3,200 facilities or 16% of
the total square feet available. Management believes this fragmented
ownership offers opportunities for acquisitions, including opportunities
resulting from the necessity of sale by some smaller operators who cannot
obtain refinancing, the desire of some smaller operators to sell their
facilities to obtain retirement funds or to seek alternative investments,
and the inability of other smaller operators to obtain funds with which to
compete for acquisitions as timely and inexpensively as the Company.
o Operating Efficiencies - After a facility is acquired, the Company
implements Storage USA operating methods, allowing it to increase rates and
trim excess expenses. Typically the Company acquires facilities at a
minimum capitalization rate ("Cap Rate") (calculated by dividing NOI by the
total acquisition cost of the facility) of 10, and the performance gained
through the Company's operating methods improves that Cap Rate
approximately 75 basis points during the first year following acquisition.
After a year of operation, the acquired facilities fall under the internal
growth strategy and will be managed accordingly to provide optimal
long-term growth. As an example, the 96 facilities owned by the Company at
December 31, 1994, generated returns of 12.3% in 1995, 13.1% in 1996, and
13.6% in 1997.
o Demand for Tax Deferral - In several of its acquisitions, the Company has
financed a portion of the purchase price through the issuance of units of
limited partnership interest in the Partnership ("Units"),
permitting the sellers to at least partially defer taxation of capital
gains. The Company believes that its ability to offer Units as a form of
consideration is a key element in its ability to successfully negotiate
with sellers of self-storage facilities. Since the IPO, the Company has
issued 2.7 million Units valued at $92 million in consideration for the
acquisition of self-storage facilities.
Development
The third point of focus in the Company's growth strategy has been implemented
to provide long-term gains that could exceed returns achieved by acquired
facilities. By developing properties, the Company is able to capitalize on
unsaturated markets where suitable acquisition opportunities may be minimal or
nonexistent. These locations may provide long-term returns in excess of those
available in typical suburban markets. Management believes that several factors
favor its facilities development strategy:
o In-House Development Expertise - The Company has recently taken advantage
of its inhouse development capability to selectively develop new facilities
in areas where suitable acquisitions may not be available. The development
activities consist primarily of additions to existing facilities and
construction of new facilities. During the year, the Company placed in
service five development properties at a cost of $16.5 million, adding 332
thousand square feet and expanded the available square feet at eight
facilities, adding 132 thousand square feet for a cost of $6.1 million. At
December 31, 1997, the Company had incurred $31.3 million of development in
process and the Company had plans to develop 21 new facilities. Expansions
are planned for 18 existing facilities. These 39 new construction projects
and expansions are underway with total estimated costs of $ 99.0
million. These 39 projects have expected completion dates ranging from the
first quarter of 1998
<PAGE>
through the second quarter of 1999. These developments are currently
underway in the following markets: Baltimore, Maryland/Washington, D.C.,
Memphis, Tennessee, Northern California, Massachusetts and Central Florida.
o Access to Development Capital - The Company has a proven ability to access
various forms of capital that differentiates it from most of its
competitors, particularly since capital for the construction of new
self-storage facilities (traditionally funded by savings and loan
associations) has been less available in recent years.
o Potentially Higher Development Returns - Development properties provide
the potential for long-term returns greater than those that can typically
be achieved by acquired facilities. However losses during the lease-up
period on these properties will reduce the Company's earnings. In addition,
local regulations may present barriers to new development. As with all real
property, storage facilities must conform to local zoning ordinances.
Typically, self-storage facilities are not a permitted use within the
commercial and retail zones desired by the Company for development of a new
facility. Therefore, the Company must generally obtain a special use permit
or zoning variance to undertake the development of a new facility. During
1997, the development properties placed in service in 1997 reduced Funds
from Operations ("FFO") by $(367) thousand, or $(0.014) per share. The
Company is increasing its development spending and is planning to invest up
to $80 million in development in 1998. The level of development is
monitored closely by management to ensure that dilution of FFO caused by
development properties in lease-up does not materially affect FFO growth.
In addition to risks associated with owning and operating established
facilities, development involves additional risks relating to delays in
construction and lease-up and less-favorable-than-anticipated rental rates,
all of which could reduce the Company's return.
Franchising
Storage USA Franchise Corp. ("Franchise") was established in 1996. The Company
owns a 97.5% ecenomic interest in Franchise and 100% of its Class B non-voting
common stock. The investment was intended to enhance the Company's short- and
long-term income streams and to provide a pipeline of acquisitions designed and
constructed to Storage USA's standards. Franchise offers a turnkey package
including access to capital, analysis of potential markets and sites, facility
design, general contractor work and facility management. As of December 31,
1997, Franchise has seven facilities open and operating, 43 under
development and 23 in due diligence. Of the total 73 facilities, approximately
43 are joint venture properties that would include earnings participation by
Franchise (this figure is subject to change, as Franchisees in the due diligence
stage have not definitively chosen which arrangement they will use). The
franchised facilities in total represent approximately $250 million in potential
future acquisitions.
The Company believes that its investment in Franchise will contribute to its
goal of enhancing shareholder return by providing an acquisition pool of
facilities designed and developed to Company specifications utilizing
franchisees' equity capital.
Capital Strategy
The Company and the Partnership intend to maintain a conservative capital
structure designed to enhance access to capital and to facilitate earnings
growth. The Company expects to finance long-term capital needs through the
issuance of equity (common and preferred) and debt securities. Since the IPO,
the Company has issued $371 million of its Common Stock in four public offerings
and $284 million of its Common Stock in a series of direct placements with
Security Capital U.S. Realty ("USRealty"), an affiliate of Security Capital
Group. Since October 1996, the Partnership has issued to the public
$400 million of its unsecured Senior Notes. These notes have been issued at
interest rates ranging from 7.125% to 8.2% and maturities ranging from
2003-2027. In addition, since the IPO, the Partnership has issued 2.7
million Units valued at $92 million in consideration for the acquisition of
self-storage facilities.
Short-term capital needs, including acquisition funding pending the issuance of
additional securities, are met through the Company's revolving lines of credit.
The Company has available $190.0 million in two unsecured revolving lines of
credit with a group of commercial banks, under which it had borrowed $31.8
million as of December 31, 1997. At December 31, 1997, the Company also had
mortgage loans outstanding of $42.8 million that were collateralized by 19
properties. The policy of the Company and the Partnership, which is subject to
change at the discretion of the Company's Board of Directors, is to limit total
indebtedness to the lesser of 50% of total assets at cost or that amount that
will sustain a minimum debt service coverage ratio of 3:1. As of December 31,
1997, the total indebtedness of the Company is 36.4% of total assets at cost and
its debt service coverage ratio for the year ended December 31, 1997, is 4.6:1.
The Company believes that this policy, the Company's success in raising equity
and, through the Partnership, debt capital, its preference for
unsecured debt and its ability to purchase self-storage facilities in exchange
for Units all demonstrate the commitment of the Company to maintain a
conservative but flexible capital structure that should permit continued access
to the capital markets on favorable terms.
Strategic Alliance with Security Capital U.S. Realty
In March 1996, the Company entered into a Strategic Alliance Agreement with
USRealty. The Strategic Alliance Agreement, among other things, permits USRealty
to purchase up to 42.5% of the Company's Common Stock and to participate in
certain offerings of the Company's equity securities. At December 31, 1997,
USRealty owned 38.3% of the Company's common stock.
The Company believes that the alliance with USRealty has provided it with access
to significant additional financial and strategic resources not otherwise
readily available to it, thereby enhancing its short-term and long-term growth
prospects and better positioning it to capitalize on opportunities as the REIT
industry matures. The Company also expects that it will benefit significantly
from its affiliation with USRealty and access to USRealty's market knowledge,
operating experience and research capabilities.
<PAGE>
Pursuant to the Strategic Alliance Agreement, and until the first to occur of
(A) the expiration of the five-year period following shareholder approval of the
Strategic Alliance (the "Standstill Period") and any extension thereof, and (B)
the first date following the consummation of the second funding in connection
with the Strategic Alliance on which US Realty's ownership of Company Common
Stock drops below 20% of the outstanding shares of Company Common Stock for a
continuous period of 180 days (a "20% Termination Date"), the Company may not
(a) incur total indebtedness in an amount exceeding 60% of the value of the
Company's total assets (which is deemed to be equal to the market value of the
Company's outstanding equity (on a fully-diluted basis at a price of $31.30 per
share) and debt as of March 1, 1996, plus the acquisition cost of properties
acquired after March 1, 1996 (less any proceeds of property dispositions that
are distributed to shareholders)), (b) cause or permit the sum of (i) securities
of any other person, (ii) assets held other than directly by the Company or the
Partnership, (iii) loans made by the Company to the Partnership or any other
Subsidiary, or the reverse, (iv) assets managed by persons other than employees
of the Company or the Partnership, to, at any time, exceed 10%, at
cost, of the consolidated assets owned by both the Company and the Operating
Partnership, (c) own real property other than self-storage facilities or land
suitable for the development of self-storage facilities whose value exceeds 10%
of the aggregate value of the Company's real estate assets at cost, (d)
terminate its eligibility for treatment as a REIT for federal income tax
purposes, or (e) except as permitted or required by agreements existing as of
March 1, 1996, (i) own any interest in any partnership unless the Company is the
sole managing general partner of such partnership or (ii) permit the Operating
Partnership to issue Units, or securities convertible or exercisable for Units,
if such issuance would cause the Company to own less than 90% of the Units on a
fully diluted basis (collectively, the "Corporate Action Covenants"). The
Company has certain specified rights to cure certain failures to comply with the
Corporate Action Covenants.
In addition, the Company is subject to certain limitations pursuant to the
Strategic Alliance that continue until USRealty's ownership of Company Common
Stock shall have been below 20% by value of the actually outstanding shares of
Company Common Stock for a continuous period of 180 days (subject to certain
conditions). Generally, these limitations restrict the amount of assets that the
Company may own indirectly through other entities and the manner in which the
Company conducts its business. USRealty requested these conditions because of
its belief that REITs with direct and extensive control over the operation of
all of their assets operate more effectively and in order to permit USRealty to
comply with certain requirements of the Code and other countries' tax laws
applicable to foreign investors. The Company, during the same period, has agreed
not to take actions in the future that would result in more than 10% of its
gross income, or more than 10% of the Company's assets by value (subject to
certain adjustments), being attributable to properties that are indirectly owned
and are not managed by employees of the Company or the Partnership.
USRealty has agreed to waive these requirements in certain specific instances
where indirect ownership facilitates the Company's acquisition of certain
facilities.
The Company believes that these limitations are generally consistent with its
operating strategies and does not believe that they will materially restrict its
operations or have a material adverse effect on its financial condition or
results of operations, though there can be no assurance that they will not do so
in the future.
Competition
Competition exists in all of the market areas in which the facilities are
located. The Company principally faces competitors who seek to attract tenants
primarily on the basis of lower prices. However, the Company usually does not
seek to be the lowest price competitor. Rather, based on the quality of its
facilities and its customer service-oriented managers and amenities, the
Company's strategy is to lead particular markets in terms of prices.
The pool of self-storage users has increased in recent years due to greater
consumer awareness, cost reduction programs by businesses, increased mobility in
the general population and an increasing mix of products and services offered by
self-storage facilities. Although circumstances vary among markets, the Company
believes that current demand for self-storage facilities is strong when compared
to the available supply of self-storage space. At the same time, the Company
believes that few operators of self-storage facilities are currently
constructing additional facilities or have access to the capital and the
development and construction expertise necessary to do so. Therefore, the
Company believes that the supply of self-storage facilities will remain
relatively limited for some time, and that the industry generally will continue
to experience strong occupancy and increasing rental rates. The Company believes
that its access to capital markets as a public company, the systems and methods
it has developed and the skilled personnel it has gathered and trained for
acquiring and managing self-storage facilities with potential for increased
occupancy and rental rates, and its expertise in facility development and
construction place the Company in a position to capitalize on these market
conditions for the benefit of its shareholders.
The Company is the second largest self-storage operator, with 26.9 million
square feet in 377 owned and 39 managed (including 9 franchises) facilities as
of March 12, 1998. In addition to the Company, there are four other publicly
traded REITs and numerous private and regional operators. These other entities
may generally be able to accept more risk than the Company can prudently manage,
including risks with respect to the geographic proximity of its investments and
the payment of higher facility acquisition prices. This competition may reduce
the number of suitable acquisition opportunities offered to the Company and
increase the price required to be able to consummate the acquisition of
particular facilities. Further, the Company believes that competition from
entities organized for purposes substantially similar to the Company's
objectives could increase. Nevertheless, the Company believes that the
operations, development and financial experience of its executive officers and
directors and its customer-oriented approach to management of self-storage
facilities should enable the Company to compete effectively.
Employees
All persons referred to herein as employees of the Company are employees of the
Partnership or its subsidiaries. As of December 31, 1997, the Company employed
approximately 1,400 employees, of whom approximately 333 were employed part-time
(fewer than 30 hours per week) on a regular basis. None of the Company's
employees are covered by a collective bargaining agreement.
<PAGE>
Qualification as a Real Estate Investment Trust
The Company operates so as to qualify as a Real Estate Investment Trust ("REIT")
under the Internal Revenue Code of 1986, as amended (the "Code"). Generally, a
REIT which complies with the Code and distributes at least 95% of its taxable
income to its shareholders does not pay federal tax on its distributed income.
Qualification as a REIT involves the application of highly technical and complex
rules for which there are only limited judicial or administrative
interpretations. The complexity of these rules is greater in the case of a REIT
that holds its assets in partnership form. Furthermore, there are no controlling
authorities that deal specifically with many tax issues affecting a REIT that
operates self-storage facilities. The determination of various factual matters
and circumstances not entirely within the Company's control may affect its
ability to qualify as a REIT. In addition, new regulations, administrative
interpretations or court decisions could have a substantial adverse effect with
respect to the qualifications as a REIT or the federal income tax consequences
of such qualification. If the Company were to fail to qualify as a REIT in any
taxable year, the Company would not be allowed a deduction for distributions to
shareholders in computing its taxable income and would be subject to federal
income tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Unless entitled to relief under certain Code
provisions, the Company also would be disqualified from treatment as a REIT for
the four taxable years following the year during which qualification was lost.
As a result, the cash available for distribution to shareholders would be
reduced for each of the years involved. Although the Company currently intends
to operate in a manner designed to qualify as a REIT it is possible that future
economic, market, legal, tax or other considerations may cause the Board of
Directors, with the consent of a majority of the shareholders, to revoke the
REIT election.
Environmental Matters
The Company has obtained Phase 1 environmental audits on all of its facilities
from various outside environmental engineering firms. The purpose of the Phase 1
audits is to identify potential sources of contamination at these facilities and
to access the status of environmental regulatory compliance. The Phase 1 audits
include historical reviews of the facilities, reviews of certain public records,
preliminary investigations of the sites and surrounding properties, visual
inspection for the presence of asbestos, PCBs and underground storage tanks, and
the preparation and issuance of a written report. A Phase 1 audit does not
include invasive procedures, such as soil sampling or ground water analysis. In
certain instances the Company has obtained Phase 2 environmental audits or
procedures in order to determine (using invasive testing) whether potential
sources of contamination indicated in Phase 1 audits actually exist. While some
of the facilities have in the past been the subject of environmental remediation
or underground storage tank removal, the Company is not aware of any
contamination of facilities requiring remediation under current law. The Company
will not take ownership of any acquisition facility prior to completing a
satisfactory environmental review and inspection procedure. No assurance can be
given that the Phase 1 and 2 audits identified or will identify all significant
environmental problems or that no additional environmental liabilities exist.
Under various federal, state and local laws and regulations, an owner or
operator of real estate may be liable for the costs of removal or remediation of
certain hazardous or toxic substances on such property. Such laws often impose
such liability without regard to whether the owner caused or knew of the
presence of hazardous or toxic substances and whether or not the storage of such
substances was in violation of a tenant's lease. Furthermore, the cost of
remediation or removal of such substances may be substantial, and the presence
of such substances, or the failure to promptly remediate such substances, may
adversely affect the owner's ability to sell such real estate or to borrow using
such real estate as collateral. In connection with the ownership and operation
of its facilities, the Company or the Partnership may become liable for such
costs.
The environmental audit reports have not revealed any environmental liability
that the Company believes would have a material adverse effect on the Company's
business, assets or results of operations, nor is the Company aware of any such
liability. Nevertheless, it is possible that these reports do not or will not
reveal all environmental liabilities or that there are material environmental
liabilities of which the Company is unaware. Moreover, no assurances can be
given that (i) future laws, ordinances or regulations will not impose any
material environmental liability, (ii) the current environmental condition of
the facilities will not be affected by the condition of the properties in the
vicinity of the facilities (such as the presence of leaking underground storage
tanks) or by third parties unrelated to the Partnership or the Company or, (iii)
tenants will not violate their leases by introducing hazardous or toxic
substances into the Company's facilities. The Company may be potentially liable
as owner of the facility for hazardous materials stored in units in violation of
a tenant's lease, although to date the Company has not incurred any such
liability.
The Company believes that the facilities are in compliance in all material
respects with all applicable federal, state and local ordinances and regulations
regarding hazardous or toxic substances and other environmental matters. The
Company has not been notified by any governmental authority of any material
noncompliance, liability or claim relating to hazardous or toxic substances or
other environmental substances in connection with any of its present or former
properties.
Policies and Objectives with Respect to Certain Activities
The following is a discussion of the Company's policies with respect to
investment and financing activities. The policies with respect to these
activities have been determined by the Board of Directors of the Company and may
be amended or revised from time to time at the discretion of the Board of
Directors without a vote of the shareholders of the Company. See also
"Limitations on Corporate Actions Pursuant to Strategic Alliance Agreement"
above.
Financing Policies
The Company may from time to time re-evaluate its borrowing policies in light of
then current economic conditions, relative costs of debt and equity capital,
market values of facilities, growth and acquisition opportunities and other
factors. The Charter and Bylaws of the Company do not limit the amount or
percentage of indebtedness, funded or otherwise, the Company might incur. The
Board of Directors of the Company has adopted a policy limiting the Company's
indebtedness to the lesser of 50% of its total assets at cost or the amount that
will sustain a minimum debt service coverage ratio of 3:1. However, the Board of
Directors can, without shareholder approval, amend or modify its current policy
on borrowing. If this policy were changed, the Company could become more highly
leveraged, resulting in an increase in debt service that could adversely affect
the Company's
<PAGE>
cash flow and ability to make distributions to its shareholders, an increased
risk of default on its obligations and an increased risk of foreclosure on
facilities securing debt. In the event management deems it appropriate, the
Company will enter into arrangements with a creditworthy financial institution
for the purpose of limiting the maximum interest expense to which the Company
would be subjected in the event interest rates rise. The Company is also subject
to certain limitations with respect to the incurrence of indebtedness under the
Strategic Alliance Agreement, as described above.
Borrowings may be incurred through the Partnership or the Company. Indebtedness
incurred by the Company may be in the form of bank borrowings, secured and
unsecured, and publicly and privately placed debt instruments. Indebtedness
incurred by the Partnership may be in the form of purchase money obligations to
the sellers of properties, publicly or privately placed debt instruments,
financing from banks, institutional investors or other lenders, any of which
indebtedness may be unsecured or may be secured by mortgages or other interests
in the property owned by the Partnership. Such indebtedness may be recourse to
all or any part of the assets of the Company or the Partnership, or may be
limited to the particular property to which the indebtedness relates. The
proceeds from any borrowings by the Company or the Partnership may be
used for the payment of distributions, working capital, for refinancing existing
indebtedness or for financing acquisitions or expansions of facilities.
Investment Policies
The Company's investment objectives are to acquire or develop income-producing
self-storage facilities with property level cash flow growth potential. While
the Company emphasizes equity real estate investments, it may, in its
discretion, invest in mortgage and other real estate interests, including
securities of other REITs. The Company does not currently invest in securities
of other REITs and has no present intention of doing so. The Company may invest
in participating or convertible mortgages if it concludes that it may benefit
from the cash flow or any appreciation in the value of the subject property.
Such mortgages are similar to equity participation. Specifically, the Company
may make participating and non-participating loans collateralized by
self-storage facilities owned by third parties.
Forward-Looking Statements and Risk Factors
All statements contained in this Annual Report that are not historical facts,
including, but not limited to, statements regarding: the Company's anticipated
future development and acquisition activity; the impact of anticipated rental
rate increases on the Company's revenue growth; the Company's 1998 budgeted
revenues, expenses and returns; future capital requirements; the Company's
business strategies; and managements' evaluation of industry and competitive
conditions, are based on current expectations. These statements are
forward-looking in nature and involve a number of risks and uncertainties.
Actual results may differ materially. Among the factors that could cause actual
results to differ materially are the following: changes in the economic
conditions in the markets in which the Company operates negatively impacting the
financial resources of the Company's clients; certain of the Company's
competitors, including some with substantially greater financial resources than
the Company, reducing the number of suitable acquisition opportunities offered
to the Company and increasing the price necessary to consummate the acquisition
of particular facilities; increased development of new facilities and
competition in Company markets resulting in over-supply and lower rental or
occupancy rates; the unavailability of sufficient capital to finance the
Company's business plan on terms satisfactory to the Company; increased costs
related to compliance with laws, including environmental laws; general business
and economic conditions; and other risk factors described elsewhere in this
Annual Report. Any such forward-looking statements speak only as of the date
made and the Company cautions readers not to place undue reliance on them.
The Company's business is subject to the following particular risks and may be
subject to other risks as yet unidentified by management:
Acquisition and Development Risks
Acquisitions entail risks that investments will fail to perform in accordance
with expectations and that judgments with respect to the prices paid for
acquired facilities and the costs of any improvements required to bring an
acquired facility up to standards established for the market position intended
for that facility will prove inaccurate, as well as general investment risks
associated with any new real estate investment. There can be no assurance that
acquisition targets meeting the Company's guidelines for quality and yield will
continue to be available in the number experienced in prior periods and that the
Company will be able to purchase such facilities in volumes adequate to meet its
goals.
The self-storage development business involves significant risks in addition to
those involved in the ownership and operation of established self-storage
facilities, including unfavorable financing terms, timing delays in construction
and lease-up, unavailable permanent financing and less-favorable than
anticipated lease terms. Consequently, there can be no assurance that the
Company will realize its development goals or that newly developed facilities
will perform as well as other facilities developed by the Company or realize
their budgeted returns.
Debt Financing Reduces Cash Flow and Increases Risk of Default
General Risks. The Company finances certain of its acquisitions and development
with unsecured debt and, in some cases, mortgage debt. As a result of the
Company's use of debt in its capital structure, the Company is subject to the
risks normally associated with debt financing. The required payments on
indebtedness are not reduced if the economic performance of the Company or any
property declines. If such decline occurs, the Company's ability to make debt
service payments would be adversely affected. If a property is mortgaged to
secure payment of indebtedness and the Company is unable to meet mortgage
payments, the property could be transferred to the mortgagee with a consequent
loss of revenue and asset value to the Company. Likewise if increased debt
payment requirements utilize funds that would otherwise have been distributed in
order to meet the 95% REIT distribution test, the Company may lose its REIT
status.
In order to maintain its qualification as a REIT, the Company must make annual
distributions to its shareholders of at least 95% of its taxable income (which
does not include net capital gains). Under certain circumstances, the Company
may be required to make distributions in excess of cash
<PAGE>
available for distribution to shareholders in order to meet such distribution
requirements. In such event, the Company would seek to borrow the amount of the
deficiency or sell assets to obtain the cash necessary to make distributions to
retain its qualification as a REIT for federal income tax purposes.
No Limitation on Debt. The Board of Directors has adopted a policy limiting the
Company's total indebtedness to the greater of not more than 50% of its total
assets at cost or the amount that will sustain a minimum debt service coverage
ration of 3:1. However, the Board of Directors of the Company, without
shareholder approval, may amend or modify its current policy on borrowing. If
this policy were changed, the Company could become more highly leveraged,
resulting in an increase in debt service that could adversely affect the
Company's funds from operations, cash flow and ability to make distributions to
its shareholders, an increased risk of default on its obligations and an
increased risk of foreclosure on facilities securing debt.
Effect of Market Interest Rates on Price of Common Stock. One of the factors
that influences the price of the Common Stock in public trading markets is the
annual yield from distributions by the Company on the price paid for Common
Stock as compared to yields on other financial instruments. Thus, an increase in
market interest rates will result in higher yields on other financial
instruments, which could adversely affect the market price of the Common Stock.
Changes in Policies
The major policies of the Company, including its policies with respect to
acquisitions, development, financing, growth, operations, debt limitation and
distributions, are determined by its Board of Directors. The Board of Directors
may amend or revise these and other policies from time to time without a vote of
the shareholders of the Company.
Tax Risks
Tax Liabilities as a Consequence of the Failure to Qualify as a REIT. The
Company intends to operate so as to qualify as a REIT for federal income tax
purposes. However, no assurance can be given that the Company will qualify or
remain qualified as a REIT. Qualification as a REIT involves the application of
highly technical and complex provisions of the Code for which there are only
limited judicial or administrative interpretations. The complexity of these
provisions and of the applicable income tax regulations that have been
promulgated under the Code is greater in the case of a REIT that holds its
assets in partnership form. Furthermore, there are no controlling authorities
that deal specifically with many tax issues affecting a REIT that operates
self-storage facilities. The determination of various factual matters and
circumstances not entirely within the Company's control may affect its ability
to qualify as a REIT. In addition, no assurance can be given that legislation,
new regulations, administrative interpretations or court decisions will not have
a substantial adverse effect with respect to the qualification as a REIT or the
federal income tax consequences of such qualification.
If the Company were to fail to qualify as a REIT in any taxable year, the
Company would not be allowed a deduction for distributions to shareholders in
computing its taxable income and would be subject to federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Unless entitled to relief under certain Code
provisions, the Company also would be disqualified from treatment as a REIT for
the four taxable years following the year during which qualification was lost.
As a result, the cash available for distribution to shareholders would be
reduced for each of the years involved. Moreover, if the Company were to fail to
qualify as a REIT, it would no longer be subject to the distribution
requirements of the Code and, to the extent that distributions to stockholders
had been made in anticipation of the Company's qualification, the Company might
be required to borrow funds or to liquidate assets to pay applicable corporate
tax. Although the Company currently intends to operate in a manner designed to
qualify as a REIT, it is possible that future economic, market, legal, tax or
other considerations may cause the Board of Directors, with the consent of a
majority of the shareholders, to revoke the REIT election.
On February 2, 1998, the Clinton Administration released a summary of its
proposed budget plan, which contained provisions that, if enacted, would affect
REITs, including the Company (the "REIT Proposals"). One such provision would
prohibit REITs from owning more than ten percent of the value of all classes of
stock of a third-party service subsidiary corporation that generates
nonqualifying income under the 95 percent gross income test. Because the Company
owns more than 10% of the value of Franchise, the REIT Proposals could adversely
affect the manner in which the Company structures its ownership of Franchise and
the magnitude of the franchising and management activities conducted by the
Company in the future. It is important to note that the REIT Proposals are only
precursors to the first stage in a lengthy legislative process that may or may
not culminate in the passage of legislation affecting REITs. Therefore, the
Company is unable to determine whether the REIT Proposals will be enacted into
legislation and, if enacted, the impact any final legislation may have on the
Company.
Adverse Effects of REIT Minimum Distribution Requirements. In order to qualify
as a REIT, the Company generally will be required each year to distribute to its
shareholders at least 95% of its net taxable income (excluding any net capital
gain). In addition, the Company will be subject to a 4% nondeductible excise tax
on the amount, if any, by which certain distributions paid by it with respect to
any calendar year are less than the sum of (i) 85% of its ordinary income, (ii)
95% of its capital gain net income for that year and (iii) 100% of its
undistributed taxable income from prior years.
The Company intends to make distributions to its shareholders to comply with the
95% distribution requirement and to avoid the nondeductible excise tax. The
Company's income and cash flow consists primarily of its share of those items
from the Partnership. Differences in timing between taxable income and cash
available for distribution could require the Company, by itself or through the
Partnership, to borrow funds on a short-term basis to meet the 95% distribution
requirement and to avoid the nondeductible excise tax. For federal income tax
purposes, distributions paid to shareholders may consist of ordinary income,
capital gains, nontaxable return of capital, or a combination thereof. The
Company will provide its shareholders with an annual statement as to the
taxability of distributions.
<PAGE>
Distributions by the Partnership are determined by the Company's Board of
Directors and will be dependent on a number of factors, including the amount of
the Partnership's cash available for distribution, the Partnership's financial
condition, any decision by the Board of Directors to reinvest funds rather than
to distribute such funds, the Partnership's capital expenditures, the annual
distribution requirements under the REIT provisions of the Code and such other
factors as the Board of Directors deems relevant.
Self-Storage Industry Risks
Operating Risks. The Company's facilities are subject to all operating risks
common to the self-storage facility industry. These include the risks normally
associated with lack of demand for rental spaces in a locale, changes in supply
of or demand for similar or competing facilities in an area and changes in
market rental rates.
Competition. The Company's facilities compete with other self-storage properties
in their geographic markets. Most of the Company's competitors seek to compete
by offering storage space at lower prices than the Company. However, instead of
emphasizing lower prices, the Company seeks to emphasize its facilities'
convenience and customer-oriented management and amenities to attract quality
tenants.
The Company competes in operations and for investment opportunities with
entities which have substantially greater financial resources than the Company.
These entities may generally be able to accept more risk than the Company can
prudently manage. Competition may generally reduce the number of suitable
investment opportunities offered to the Company and increase the bargaining
power of property owners seeking to sell. See "Business-Competition" above.
Real Estate Investment Risks
General Risks. The Company's investments are subject to varying degrees of risk
generally incident to the ownership of real property. The underlying value of
the Company's real estate investments and the Company's income and ability to
make distributions to its shareholders is dependent upon the Company's ability
to operate the facilities in a manner sufficient to maintain or increase cash
provided by operations. Income from the facilities may be adversely affected by
adverse changes in national economic conditions, adverse changes in local market
conditions due to changes in general or local economic conditions and
neighborhood characteristics, competition from other self-storage properties,
changes in interest rates and in the availability, cost and terms of mortgage
funds, the impact of present or future legislation and regulatory compliance,
including the costs of compliance with environmental, zoning and land use and
fire and safety regulations as well as building codes and other laws, rules and
regulations affecting the Company's facilities, the ongoing need for capital
improvements, changes in real estate tax rates and other operating expenses,
adverse changes in governmental rules and fiscal policies, civil unrest, acts of
God, including earthquakes and other natural disasters (which may result in
uninsured losses), acts of war, and other factors which are beyond the control
of the Company.
Illiquidity of Real Estate May Limit its Value. Real estate investments are
relatively illiquid. The ability of the Company to vary its portfolio in
response to changes in economic and other conditions is limited. There can be no
assurance that the Company will be able to dispose of an investment when it
finds disposition advantageous or necessary or that the sale price of any
disposition will recoup or exceed the amount of the Company's investment.
Uninsured and Underinsured Losses Could Result in Loss of Value of Facilities.
The Company maintains comprehensive insurance on each of its facilities,
including liability, fire and extended coverage. Management believes this
coverage is of the type and amount customarily obtained for or by an owner on
real property. However, there are certain types of losses, generally of a
catastrophic nature, such as earthquakes and floods, that may be uninsurable or
not economically insurable, as to which the Company's facilities are at risk in
their particular locales. The Company's management uses its discretion in
determining amounts, coverage limits and deductibility provisions of insurance,
with a view to requiring appropriate insurance on the Company's investments at a
reasonable cost and on suitable terms. This may result in insurance coverage
that in the event of a substantial loss would not be sufficient to pay the full
current market value or current replacement cost of the Company's lost
investment. Inflation, changes in building codes and ordinances, environmental
considerations, and other factors also might make it unfeasible to use insurance
proceeds to replace a facility after it has been damaged or destroyed. Under
such circumstances, the insurance proceeds received by the Company might not be
adequate to restore its economic position with respect to such property.
Possible Liability Relating to Environmental Matters. The Company may be
subject to liability under various environmental laws as an owner or operator
of real estate. See "Business - Operating Practices - Environmental Matters."
Anti-Takeover Measures
The Company's Charter and By-laws and Tennessee law include a number of
provisions that could have the effect of discouraging a takeover or other
transaction in which shareholders of the Company might receive a premium for
their shares over the then prevailing market price or which such holders might
believe to be otherwise in their best interest, including: (i) a prohibition on
direct or constructive ownership of more than 9.8% of the outstanding shares of
Common Stock by any person (except USRealty, which may acquire up to 42.5% of
the Company's Common Stock); (ii) the capacity to issue "blank check" preferred
stock with terms and preferences established by the Board of Directors; and
(iii) the Tennessee Investor Protection Act, Business Combination Act and
Greenmail Act, which impose certain restrictions and require certain procedures
with respect to certain takeover offers and business combinations.
<PAGE>
Item 2. Properties
The following are definitions of terms used throughout this discussion in
analyzing the Company's business. "Physical occupancy" is the total net rentable
square feet rented as of the date computed divided by the total net rentable
square feet available. "Economic occupancy" is determined by dividing the
expected income by the gross potential income. "Gross potential income" is the
sum of all units available to rent at a facility multiplied by the market rental
rate applicable to those units as of the date computed. "Expected income" is the
sum of the monthly rent being charged for the rented units at a facility as of
the date computed. "Rent per square foot" is the annualized result of dividing
gross potential income on the date computed by total net rentable square feet.
Self-Storage Facilities
The Company's self-storage facilities offer customers fully-enclosed units,
which are for their exclusive use and to which they control access by furnishing
their own locks. The average size of a Company-owned facility is 65,000 square
feet and contains an average of 620 units. At December 31, 1997, the average
rent per square foot for the Company-owned facilities was $9.90. The average
direct expense per square foot for Company owned facilities is $2.39. Based on
surveys performed by the Company in the third quarter of 1997, the Company's
client base is 63% residential and 37% commercial. The average length of stay of
a commercial tenant is 26.4 months and for a residential tenant is 8.2 months.
At December 31, 1997, the average occupancy of the 360 facilities owned by the
Company was 84% physical and 76% economic.
The Company's self-storage facilities are located near major business and
residential areas, and generally are clearly visible and easily accessible from
major traffic arteries. They are generally protected by computer-controlled
access gates, door alarm systems and video cameras. These facilities are
typically constructed of one-story masonry or tilt-up concrete walls, with an
individual roll-up door for each storage space and with removable steel interior
walls to permit reconfiguration and to protect items from damage. Sites have
wide drive aisles to accommodate most vehicles. The Company's facilities are
designed to be aesthetically pleasing, are kept clean and in good repair by
friendly, trained managers, and are open for service during hours and on days
convenient to tenants and prospective tenants. At most of the facilities, a
property manager lives in an apartment located on site. Climate-controlled space
is offered in many facilities for storing items that are sensitive to extreme
humidity or temperature. Some of the facilities provide paved secure storage
areas for recreational vehicles, boat and commercial vehicles. All facilities
offer reception of deliveries for commercial customers. The facilities generally
contain 400 to 1,000 units varying in size from 25 to 400 square feet. The
majority of the Company's tenants are individuals, ranging from high-income
homeowners to college students, who typically store furniture, appliances and
other household and personal items. Commercial users range from sales
representatives and distributors storing inventory to small businesses that
typically store equipment, records and seasonal items. The facilities generally
have a diverse tenant base of 500 to 600 tenants, with no single tenant
occupying more than one to two percent of the net rentable square feet of a
facility.
Capital Expenditures and Maintenance
Due to the type of simple structures and durable materials used for the
facilities, property maintenance is minimal as compared to other types of real
estate investments. The majority of the Company's facilities are one story, with
either tilt-up concrete or masonry load-bearing walls, easily moved steel
interior walls, and metal roofs. Typical capital expenditures include replacing
asphalt roofs, gates, air conditioning equipment and elevators (as contrasted
with expense items such as repairing asphalt, repairing a door, pointing up
masonry walls, painting trim and facades, repairing a fence, maintaining
landscaping, and repairing damage caused by tenant vehicles). Maintenance within
a storage unit between leasing typically consists of sweeping out the unit and
changing a light bulb. Maintenance is the responsibility of the facility manager
who resides in the apartment located at most of the facilities.
<PAGE>
Markets
<TABLE>
<CAPTION>
Number of Available Available Physical Rent Per Economic
State Properties Units Square Feet Occupancy Square Foot Occupancy
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Alabama 2 874 110,612 88.2% $ 8.04 81.1%
Arizona 19 11,264 1,100,276 80.7% $ 8.66 75.5%
California 78 57,749 5,777,482 87.4% $ 10.42 76.5%
Colorado 2 1,382 158,055 79.5% $ 8.65 76.5%
Connecticut 7 4,591 530,659 88.6% $ 11.11 82.2%
District of Columbia 1 1,402 107,405 82.6% $ 16.28 80.6%
Delaware 1 624 71,720 86.8% $ 11.88 79.0%
Florida 29 24,181 2,257,911 80.8% $ 11.78 74.5%
Georgia 6 3,660 418,817 75.0% $ 8.64 67.0%
Illinois 1 625 76,191 67.5% $ 9.52 54.4%
Indiana 22 8,916 1,010,984 79.4% $ 6.75 72.0%
Kansas 4 1,685 200,805 85.8% $ 8.60 81.6%
Kentucky 6 2,522 279,755 77.9% $ 7.04 69.1%
Massachusetts 12 5,796 693,430 88.8% $ 9.98 80.2%
Maryland 12 8,892 857,660 89.0% $ 14.17 82.1%
Michigan 7 4,140 442,577 87.5% $ 9.30 76.4%
Missouri 2 955 104,870 92.2% $ 7.40 93.1%
North Carolina 6 3,671 400,769 78.6% $ 7.05 73.3%
New Jersey 15 9,566 1,021,474 86.7% $ 13.98 81.1%
New Mexico 10 5,066 501,437 71.4% $ 8.38 62.9%
Nevada 8 4,578 540,630 83.1% $ 8.57 75.4%
New York 6 3,466 316,911 86.3% $ 10.81 81.3%
Ohio 20 8,712 1,172,659 78.3% $ 6.94 69.0%
Oklahoma 16 7,962 949,434 84.0% $ 5.94 78.0%
Oregon 3 2,172 205,235 83.1% $ 11.07 74.5%
Pennsylvania 8 5,077 506,800 87.0% $ 11.64 79.0%
Tennessee 26 13,792 1,589,601 80.4% $ 8.91 71.6%
Texas 15 10,283 1,138,376 84.8% $ 8.13 77.4%
Utah 3 1,576 196,635 81.2% $ 7.27 75.2%
Virginia 12 7,734 723,085 85.1% $ 13.91 78.3%
Washington 1 582 62,550 89.0% $ 8.01 80.0%
-------------------------------------------------------------------------------------------------------
Grand Total 360 223,495 23,524,805 83.8% $ 9.90 76.2%
=======================================================================================================
</TABLE>
Item 3. Legal Proceedings.
The Company is the subject of a purported national class action filed on
September 25, 1997, in the Superior Court of the District Of Columbia, Nelda
Perkins v. Storage USA, Inc., Civil Action No. 97-CA97426, seeking recovery of
certain late fees paid by Company tenants since September 1993, treble damages,
unspecified punitive damages and an injunction against further assessment of
similar fees. The Company filed its initial response in the case, believes it
has defenses to the claims and intends to defend the suit vigorously. While the
ultimate resolution of this case cannot be currently determined, management
believes that the aggregate liability or loss, if any, resulting from this claim
will not have a material adverse effect on its financial position. However, if
durirng any period the potential contingency should become probable, the results
of operations in that period could be materially affected.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's shareholders during the
last quarter of its fiscal year ended December 31, 1997.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Incorporated herein by reference from the caption "Price Range of Common Stock
and Dividends" appearing in the Company's 1997 Annual Report to Shareholders,
the relevant portion of which is attached hereto as Exhibit 13. Information
regarding the Company's dividend policy is included in Item 7. On November 6,
1997, the Company issued 91,966 shares of its common stock to four individuals
in exchange for their interest in certain self-storage facilities. The shares
were issued in a private transaction in reliance on the exemption from
registration provided by section 4(2) of the Securities Act of 1933.
Item 6. Selected Financial Data.
Incorporated herein by reference from the caption "Selected Financial Data"
appearing in the Company's 1997 Annual Report to Shareholders, the relevant
portion of which is attached hereto as Exhibit 13.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
Incorporated herein by reference from the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing in the
Company's 1997 Annual Report to Shareholders, the relevant portion of which is
attached hereto as Exhibit 13.
Item 8. Financial Statements and Supplementary Data.
The Company's Financial Statements and Supplementary Data for the year ended
December 31, 1997, are incorporated herein by reference from the Company's 1997
Annual Report to Shareholders, the relevant portion of which is attached hereto
as Exhibit 13.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant:
at March 25, 1998
The information required hereunder is incorporated herein by reference from the
captions "Election of Directors" and "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's definitive proxy statement to be filed
with respect to its Annual Meeting of Shareholders.
The following information relates to executive officers of the Company who are
not also directors:
Dennis A. Reeve has been Chief Financial Officer of the Company since
June 1, 1997. Mr. Reeve was a Director of the Company from April 13, 1994 until
his appointment as Chief Financial Officer. From 1994 until June 1, 1997, Mr.
Reeve was President of Sparks Capital Corporation, a NASD general securities
broker/dealer. In 1992 and 1993 Mr. Reeve worked as a private consultant.
Douglas Chamberlain has been Executive Vice President, Development
of the Company since March 1994 and President and Chief Operating Officer of
Storage USA Construction Corp. since March 1989. Mr. Chamberlain holds a
Masters degree in Structural Engineering from the University of Maryland.
Karl Haas has been Executive Vice President, Management of the
Company since March 1994. He was Executive Vice President of Storage USA
Management Corp. from October 1988 until November 1991, when he became its
President and Chief Operating Officer. Mr. Haas received his Bachelor of
Science degree in Accounting from the University of Maryland, is a Certified
Public Accountant and worked for the accounting firm of Arthur Young & Co. for
ten years.
Morris J. Kriger has been Executive Vice President of the Company since
March of 1996, and is responsible for Acquisitions. Mr. Kriger holds a Bachelors
Degree in Industrial Management from MIT and received his Juris Doctorate from
Harvard Law School. Mr. Kriger has more than 30 years experience in practical
real estate law and lending law, representing developers and lenders in a
variety of real estate types throughout the United States. Mr. Kriger has also
served as General Counsel to two prestigious real estate companies.
Christopher Marr became Senior Vice President, Finance and Accounting
of the Company on July 1, 1997. Prior to that, Mr. Marr was Vice President,
Financial Reporting and Controller of the Company from August 1, 1994. From 1986
to July 1994, Mr. Marr worked for the accounting firm of Coopers & Lybrand, from
1992 through 1994 as a senior manager. Mr. Marr holds a Bachelor of Arts degree
in Accounting from Loyola College, Baltimore, Maryland, and is a Certified
Public Accountant.
<PAGE>
Richard B. Stern has been Senior Vice President, Development since
July of 1996. Prior to joining the Company, Mr. Stern held Senior Executive
positions with Kemper Corporation, Baird & Warner and Balcor. Mr. Stern holds
a B.A. in Urban Planning from the University if Illinois and an M.A. in
Geography from Northeastern Illinois University.
Buck Brown has been Senior Vice President, Human Resources since
February of 1998. Prior to joining the Company, Mr. Brown held various positions
at AutoZone, Inc., most recently Vice President of Human Resources.
Item 11. Executive Compensation.
Incorporated herein by reference from the caption "Election of Directors -
Executive Compensation" in the Company's definitive proxy statement to be filed
with respect to its Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated herein by reference from the caption "Election of Directors -
Beneficial Ownership of Company Common Stock" in the Company's definitive proxy
statement to be filed with respect to its Annual Meeting of Shareholders.
Item 13. Certain Relationships and Related Transactions.
Incorporated herein by reference from the caption "Election of Directors -
Certain Transactions" in the Company's definitive proxy statement to be filed
with respect to its Annual Meeting of Shareholders.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as a part of this report and
are hereby incorporated by reference from the Company's 1997 Annual
Report to Shareholders, excerpts from which are attached hereto as
Exhibit 13:
1. Financial Statements:
Report of Coopers & Lybrand L.L.P.
Balance sheets as of December 31, 1997 and 1996
Statements of operations for the years ended December 31, 1997, 1996
and 1995
Statements of cash flows for the years ended December 31, 1997, 1996
and 1995
Statements of shareholders' equity for the years ended December 31, 1997,
1996 and 1995
Notes to consolidated financial statements
Supplementary information on quarterly financial data (unaudited)
Selected Financial Data
Schedule III, Real Estate and Accumulated Depreciation as of December
31, 1997
Report of Independent Accountants
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements and notes thereto.
(b) Reports on Form 8-K
On October 6, 1997, the Company filed an amendment to its Current
Report on Form 8-K, filed September 17, 1997. The amendment included the
following historical and pro forma financial statements with respect to the 9
self-storage facilities referred to in the filing.
Financial Statements Applicable to Real Estate Properties Acquired:
o Report of Independent Accountants
o Acquisition Facilities Historical Summaries of Combined
Gross Revenue and Direct Operating Expenses for the year
ended December 31, 1996 (Audited), and for the six months
ended June 30, 1997 (Unaudited).
o Notes to Historical Summaries of Combined Gross Revenue
and Direct Operating Expenses
Pro Forma Financial Information:
o Unaudited Pro-Forma Combined Condensed Balance Sheet as of
June 30, 1997.
o Unaudited Pro-Forma Combined Condensed Statement of
Operation for the six months ended June 30, 1997.
o Unaudited Pro-Forma Combined Condensed Statement of
Operations for the year ended December 31, 1996.
o Notes to Unaudited Pro-Forma Combined Condensed Financial
Statements.
<PAGE>
On November 21, 1997, the Company filed its current report on Form 8-K.
The filing included certain information with respect to the 37 self-storage
facilities referred to in the filing.
On November 25, 1997, the Company filed an amendment to its Current
Report on Form 8-K, filed on November 21, 1997. The amendment included the
following historical and pro forma financial statements with respect to the 37
self-storage facilities referred to in the filing.
Financial Statements Applicable to Real Estate Properties Acquired:
o Report of Independent Accountants
o Acquisition Facilities Historical Summaries of Combined
Gross Revenue and Direct Operating Expenses for the year
ended December 31, 1996 (Audited), and for the nine months
ended September 30, 1997 (Unaudited).
o Notes to Historical Summaries of Combined Gross Revenue
and Direct Operating Expenses
Pro Forma Financial Information:
o Unaudited Pro-Forma Combined Condensed Balance Sheet as of
September 30, 1997.
o Unaudited Pro-Forma Combined Condensed Statement of
Operation for the nine months ended September 30, 1997.
o Unaudited Pro-Forma Combined Condensed Statement of
Operations for the year ended December 31, 1996.
o Notes to Unaudited Pro-Forma Combined Condensed Financial
Statements.
(c) Exhibits
The following exhibits are filed as part of this report:
Exhibit No. Description
3.1 Amended and Restated Charter of Storage USA, Inc. (the
"Company"), (filed as Exhibit 3.1 to the Company's Registration
Statement on Form S-3 (File No. 333-44641), and
incorporated by reference herein).
3.2* Restated and Amended Bylaws of the Company.
4* Specimen Common Stock Certificate.
10.1* Agreement between the Company and certain executive
officers prohibiting conflicting self-storage interests.
10.2* Company's Omnibus Stock Option Plan.
10.3* SUSA Partnership, L.P. (the "Partnership") 401(k) Savings Plan.
10.4** Form of Registration Rights Agreement relating to
Partnership unit issuances in 1994.
10.5++ Form of Agreement of General Partners relating to certain
Partnership unit issuances in 1995 and schedule of
beneficiaries.
10.6++ Form of Registration Rights Agreement relating to certain
issuances of Partnership units after 1994 and schedule of
beneficiaries.
10.7++ Form of Stock Purchase Agreement in connection with the 1995
Employee Stock Purchase and Loan Plan, and schedule of
participants.
10.8++ Form of Promissory Note in connection with the 1995
Employee Stock Purchase and Loan Plan, and schedule of
issuers.
<PAGE>
10.9++++ Second Amended and Restated Agreement of Limited
Partnership of the Partnership, dated as September 21, 1994
(the "Partnership Agreement").
10.10 First Amendment to the Partnership Agreement, dated March
19, 1996 (filed as Exhibit 10.3 to the Company's Current
Report on Form 8-K/A, filed April 1, 1996, and incorporated
by reference herein).
10.11 Second Amendment to the Partnership Agreement, dated as of
June 14, 1996 (filed as Exhibit 10.0 to the Company's
Current Report on Form 8-K/A filed July 17, 1996, and
incorporated by reference herein).
10.12 Third Amendment to Partnership Agreement, dated as of
August 14, 1996 (filed as Exhibit 10.1 to the Company's
Amendment No. 1 to a Registration Statement on Form S-3
(File No. 333-04556), and incorporated by reference
herein).
10.13 Strategic Alliance Agreement, dated as of March 1, 1996,
between the Company and Security Capital Holdings S.A. and
Security Capital U.S. Realty (filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K, filed on April 1,
1996, and incorporated by reference herein).
10.14 Amendment No. 1 to Strategic Alliance Agreement, dated June 14,
1996, between the Company, the Partnership, Storage USA Trust,
Security Capital U.S. Realty and Security Capital Holdings,
S.A. (filed as Exhibit 10.2 to the Company's Amendment No. 1 to
Registration Statement on Form S-3 (File No. 333-04556), and
incorporated by reference herein).
10.15 Registration Rights Agreement, dated as of March 19, 1996,
between the Company, Security Capital Holdings, S.A. and
Security Capital U.S. Realty (filed as Exhibit 10.2 to the
Company's Current Report on Form 8-K, filed on April 1,
1996, and incorporated by reference herein).
10.16 Indenture, dated November 1, 1996, between the Partnership
and First National Bank of Chicago, as Trustee (filed as
Exhibit 10.1 to the Company's Current Report on Form 8-K,
filed on November 8, 1996, and incorporated by reference
herein).
10.17+ First Amendment to the Adoption Agreement for the Company's
401(k) Plan.
10.18 Amended and Restated Revolving Credit Agreement dated
December 23, 1997 (filed as an exhibit to the Company's
current Report on Form 8-K, filed on January 20, 1998,
and incorporated by reference herein.
13 Relevant portions of the Company's 1997 Annual Report to
Shareholders are filed herewith.
21 Subsidiaries of Registrant.
23 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule - 1997
27.2 Financial Data Schedule - 1997 (First three quarters)
27.3 Financial Data Schedule - 1996
27.4 Financial Data Schedule - 1995
* Filed as an Exhibit to the Company's Registration Statement on Form
S-11, File No. 33-74072, as amended, and incorporated by reference
herein.
** Filed as an Exhibit to the Company's Registration Statement on Form
S-11, File No. 33-82764, as amended, and incorporated by reference
herein.
*** Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the
<PAGE>
fiscal year ended December 31, 1994, and incorporated by
reference herein.
+ Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995, and incorporated by
reference.
++ Filed as an Exhibit to the Company's Current Report on Form 8-K, as
amended to Form 8-K/A Filed November 17, 1995, and incorporated by
reference herein.
++ Filed as an Exhibit to the Company's Current Report on Form 8-K,
filed May 30, 1995, and incorporated by reference herein.
++++ Filed as an Exhibit to the Company's Registration Statement on Form
S-3, File No. 33-91302, and incorporated by reference herein.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
STORAGE USA, INC.
By: /s/ Dennis A. Reeve
-------------------
Dennis A. Reeve
Chief Financial Officer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C>
/s/ DEAN JERNIGAN Chairman of the Board of Directors March 27, 1998
---------------------------- Chief Executive Officer & President (Principal
Dean Jernigan Executive Officer)
/s/ CHRISTOPHER P. MARR (Principal Accounting Officer) March 27, 1998
----------------------------
Christopher P. Marr
/s/ HOWARD P. COLHOUN Director March 27, 1998
----------------------------
Howard P. Colhoun
/s/ C. RONALD BLANKENSHIP Director March 27, 1998
----------------------------
C. Ronald Blankenship
/s/ HARRY J. THIE Director March 27, 1998
----------------------------
Harry J. Thie
/s/ MARK JORGENSEN Director March 27, 1998
----------------------------
Mark Jorgensen
/s/ JOHN P. MCCANN Director March 27, 1998
----------------------------
John P. McCann
/s/ WILLIAM D. SANDERS Director March 27, 1998
----------------------------
William D. Sanders
/s/ CAROLINE S. MCBRIDE Director March 27, 1998
----------------------------
Caroline S. McBride
/s/ ALAN B. GRAF, JR. Director March 27, 1998
----------------------------
Alan B. Graf, Jr.
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
3.1 Amended and Restated Charter of Storage USA, Inc. (the "Company"),
(filed as Exhibit 3.1 to the Company's Registration Statement on
Form S-3 (File No. 333-44641), and incorporated by reference
herein).
3.2* Restated and Amended Bylaws of the Company.
4* Specimen Common Stock Certificate.
10.1* Agreement between the Company and certain executive
officers prohibiting conflicting self-storage interests.
10.2* Company's Omnibus Stock Option Plan.
10.3* SUSA Partnership, L.P. (the "Partnership") 401(k) Savings Plan.
10.4** Form of Registration Rights Agreement relating to
Partnership unit issuances in 1994.
10.5++ Form of Agreement of General Partners relating to certain
Partnership issuances in 1995 and schedule of
beneficiaries.
10.6++ Form of Registration Rights Agreement relating to certain
issuances of Partnership units after 1994 and schedule of
beneficiaries.
10.7++ Form of Stock Purchase Agreement in connection with the 1995
Employee Stock Purchase and Loan Plan, and schedule of
participants.
10.8++ Form of Promissory Note in connection with the 1995
Employee Stock Purchase and Loan Plan, and schedule of
issuers.
10.9++++ Second Amended and Restated Agreement of Limited
Partnership of the Partnership, dated as September 21,
1994 (the "Partnership Agreement").
10.10 First Amendment to the Partnership Agreement, dated March
19, 1996 (filed as Exhibit 10.3 to the Company's Current
Report on Form 8-K, filed April 1, 1996, and incorporated
by reference herein).
10.11 Second Amendment to the Partnership Agreement, dated as of
June 14, 1996 (filed as Exhibit 10.0 to the Company's
Current Report on Form 8-K/A filed July 17, 1996, and
incorporated by reference herein).
10.12 Third Amendment to Partnership Agreement, dated as of August
14, 1996 (filed as Exhibit 10.1 to the Company's Amendment
No. 1 to a Registration Statement on Form S-3 (File No.
333-04556), and incorporated by reference herein).
10.13 Strategic Alliance Agreement, dated as of March 1, 1996,
between the Company and Security Capital Holdings S.A. and
Security Capital U.S. Realty (filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K, filed on April 1,
1996, and incorporated by reference herein).
10.14 Amendment No. 1 to Strategic Alliance Agreement, dated June 14,
1996, between the Company, the Partnership, Storage USA Trust,
Security Capital U.S. Realty and Security Capital Holdings, S.A.
(filed as Exhibit 10.2 to the Company's Amendment No. 1 to
Registration Statement on Form S-3 (File No. 333-04556), and
<PAGE>
incorporated by reference herein).
10.15 Registration Rights Agreement, dated as of March 19, 1996,
between the Company, Security Capital Holdings, S.A. and
Security Capital U.S. Realty (filed as Exhibit 10.2 to the
Company's Current Report on Form 8-K, filed on April 1,
1996, and incorporated by reference herein).
10.16 Indenture, dated November 1, 1996, between the Partnership
and First National Bank of Chicago, as Trustee (filed as
Exhibit 10.1 to the Company's Current Report on Form 8-K,
filed on November 8, 1996, and incorporated by reference
herein).
10.17+ First Amendment to the Adoption Agreement for the Company's
401(k) Plan.
10.18 Amended and Restated Revolving Credit Agreement dated
December 23, 1997 (filed as an exhibit to the Company's
current Report on Form 8-K, filed on January 20, 1998, and
incorporated by reference herein.
13 Relevant portions of the Company's 1997 Annual Report to
Shareholders are filed herewith.
21 Subsidiaries of Registrant.
23 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule - 1997
27.2 Financial Data Schedule - 1997 (First three quarters)
27.3 Financial Data Schedule - 1996
27.4 Financial Data Schedule - 1995
* Filed as an Exhibit to the Company's Registration Statement on Form
S-11, File No. 33-74072, as amended, and incorporated by reference
herein.
** Filed as an Exhibit to the Company's Registration Statement on Form
S-11, File No. 33-82764, as amended, and incorporated by reference
herein.
*** Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994, and incorporated by
reference herein.
+ Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995, and incorporated by
reference.
++ Filed as an Exhibit to the Company's Current Report on Form 8-K, as
amended to Form 8-K/A Filed November 17, 1995, and incorporated by
reference herein.
++ Filed as an Exhibit to the Company's Current Report on Form 8-K,
filed May 30, 1995, and incorporated by reference herein.
++++ Filed as an Exhibit to the Company's Registration Statement on Form
S-3, File No. 33-91302, and incorporated by reference herein.
Selected Financial Data
Amounts in thousands, except share and per share data
<TABLE>
<CAPTION>
Predecessor March 1994
and Company (inception)
combined through Predecessor
----------
Year ended 1997 1996 1995 1994(2) Dec. 31, 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Property revenues $ 160,570 $ 107,309 $ 68,007 $ 28,432 $ 25,834 $ 11,189
Property expenses 78,796 53,672 34,525 14,307 12,793 5,957
- -----------------------------------------------------------------------------------------------------------------------------------
Income from property operations $ 81,774 $ 53,637 $ 33,482 $ 14,125 $ 13,041 $ 5,232
Other income and expense, net $ (16,028) $ (7,557) $ (2,838) $ (1,941) $ (746) $ (4,432)
Income before minority
interest and gain on exchange 65,746 46,080 30,644 12,184 12,295 800
Gain on exchange of self-storage facilities 2,569 288 -- -- -- --
Minority interest (5,899) (2,842) (1,491) (419) (365) (351)
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 62,416 $ 43,526 $ 29,153 $ 11,765 $ 11,930 $ 449
Basic net income per common share(3) $ 2.33 $ 2.09 $ 1.87 $ -- $ 1.28 $ --
Diluted net income per common share(3) $ 2.31 $ 2.07 $ 1.86 $ -- $ 1.28 $ --
Distributions per common share $ 2.40 $ 2.25 $ 2.04 $ -- $ 1.41 $ --
Funds from operations (FFO)(1) $ 77,315 $ 54,589 $ 36,452 $ -- $ 14,757 $ --
Cash flows from:
Operating activities $ 72,219 $ 59,528 $ 38,308 $ 17,479 $ 17,816 $ 1,389
Investing activities (362,888) (276,880) (217,174) (216,184) (216,184) (3,750)
Financing activities 290,518 215,669 178,547 201,880 201,693 2,448
- -----------------------------------------------------------------------------------------------------------------------------------
As of December 31:
Total assets $1,259,800 $ 845,245 $ 509,525 $ -- $ 280,173 $ 55,253
Total debt 474,609 198,454 114,275 -- 8,373 65,753
Shareholders' equity (deficit) 695,415 588,238 364,350 -- 254,691 (12,662)
- -----------------------------------------------------------------------------------------------------------------------------------
Common shares outstanding 27,634,790 24,723,027 17,562,363 -- 13,298,812 --
</TABLE>
(1) The Company presented its 1997 and 1996 FFO under the amended method as
defined by the National Association of Real Estate Investment Trusts, and
restated prior years' FFO. As such, the Company's FFO may not be comparable
to similarly titled measures of other REITs who may not have restated prior
years FFO under the amended method. The amended definition of FFO is defined
as net income, computed in accordance with generally accepted accounting
principles, excluding gains (losses) from debt restructuring and sales of
property, plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures.
(2) The combined results for 1994 are presented unaudited as they represent the
sum of the amounts derived by combining the audited results of the
Predecessor for the period January 1, 1994 to March 23, 1994, and the
audited results of the Company for the period March 24, 1994 through
December 31, 1994.
(3) The Company adopted Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings per Share," for the year ended December 31, 1997. All prior
periods have been restated to conform with SFAS No.128.
11
<PAGE>
Storage USA, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
All statements contained herein that are not historical facts, including but not
limited to, statements regarding anticipated future development and acquisition
activity, the impact of anticipated rental rate increases on Storage USA, Inc.'s
(the "Company") revenue growth, the Company's 1998 anticipated revenues,
expenses and returns, and future capital requirements, are based on current
expectations. These statements are forward looking in nature and involve a
number of risks and uncertainties. Actual results may differ materially. Among
the factors that could cause actual results to differ are the following: changes
in the economic conditions in the markets in which the Company operates
negatively impacting the financial resources of the Company's customers; certain
of the Company's competitors with substantially greater financial resources than
the Company reducing the number of suitable acquisition opportunities offered to
the Company and increasing the price necessary to consummate the acquisition of
particular facilities; increased development of new facilities in Company
markets resulting in over-supply thereby lowering rental rates; the availability
of sufficient capital to finance the Company's business plan on terms
satisfactory to the Company; competition; increased costs related to compliance
with laws, including environmental laws; general business and economic
conditions; and the other risk factors described in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997 and reports filed from time to
time with the Securities and Exchange Commission. The Company cautions readers
not to place undue reliance on any such forward looking statements, which
statements are made pursuant to the Private Securities Litigation Reform Act of
1995 and, as such, speak only as of the date made.
The following discussion and analysis of the consolidated financial
condition and results of operations should be read in conjunction with the
Consolidated Financial Statements and Notes thereto. References to the Company
include Storage USA, Inc. (the "REIT") and SUSA Partnership L.P., the principal
operating subsidiary of the REIT (the "Partnership").
The following are definitions of terms used throughout this discussion
analyzing the Company's business. Physical Occupancy is defined as the total net
rentable square feet rented as of the date computed divided by the total net
rentable square feet available. Gross Potential Income is defined as the sum of
all units available to rent at a facility multiplied by the market rental rate
applicable to those units as of the date computed. Expected Income is defined as
the sum of the monthly rent being charged for the rented units at a facility as
of the date computed. Economic Occupancy is defined as the Expected Income
divided by the Gross Potential Income. Rent Per Square Foot is defined as the
annualized result of dividing Gross
Potential Income on the date computed by total net rentable square feet
available. Direct Property Operating Cost is defined as the costs incurred in
the operation of a facility, such as utilities, real estate taxes, and on-site
personnel. Indirect Property Operating Cost is defined as costs incurred in the
management of all facilities, such as accounting personnel and management level
operations personnel. Net Operating Income ("NOI") is defined as total property
revenues less Direct Property Operating Costs. Annual Capitalization Rate ("Cap
Rate") is defined as NOI of a facility divided by its total acquisition price.
Funds from operations ("FFO") is defined as net income, computed in accordance
with generally accepted accounting principles ("GAAP"), excluding gains (losses)
from debt restructuring and sales of property, plus depreciation and
amortization, and after adjustments for unconsolidated partnerships and joint
ventures.
Outlook
The Company's overall goal is to maximize shareholder value through implementing
its strategy in the following four key points of focus:
o internal growth through continued improvement in
operating results at owned properties,
o external growth through acquisitions,
o current investment for enhanced long-term returns through development, and
o ownership of a non-voting Common Stock investment in a new business
concept, Storage USA Franchise Corp., an unconsolidated entity engaged in
the franchising of the Company's self-storage concept.
Internal Growth Strategy
The Company's internal growth strategy is to pursue an active leasing policy,
which includes aggressively marketing available space and renewing existing
leases at higher rents per square foot while controlling expense growth. The
Company's ability to implement its internal growth strategy may be evaluated by
examining the "year over year" results of the Company's same-store facilities
during 1997 and 1996. The same-store facilities include all properties that were
owned by the Company for the entire period of both comparison years. As such,
the same-store pool changes from quarter to quarter and year to year.
Development properties and expansions are removed from these groups to avoid
skewing the results.
12
<PAGE>
Storage USA, Inc.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (cont.)
The following table details selected same-store statistics comparing 1997
results to 1996 results at the end of each quarter:
<TABLE>
<CAPTION>
Quarter/Year Number of Same-store Same-store Same-store Rent Per Rent Per % Increase Physical Physical
Ended: Same-store Revenue Expense NOI % Square Foot Square Foot in Rent Per Occupancy Occupancy
Facilities Growth Growth Growth 1997 1996 Square Foot 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
March 31 149 5.1% (7.9%) 11.6% $ 9.98 $9.38 6.4% 86% 88%
June 30 155 5.7% (.2%) 8.1% $10.07 $9.41 7.0% 88% 90%
September 30 181 6.4% .5% 8.7% $10.10 $9.44 6.8% 88% 89%
December 31 193 5.2% 3.5% 5.8% $10.30 $9.60 7.3% 86% 87%
Year, 1997 140 5.7% (1.4%) 8.7% $10.30 $9.60 7.3% 86% 87%
</TABLE>
The following table details selected same-store statistics comparing 1996
results to 1995 results at the end of each quarter:
<TABLE>
<CAPTION>
Quarter/Year Number of Same-store Same-store Same-store Rent Per Rent Per % Increase Physical Physical
Ended: Same-store Revenue Expense NOI % Square Foot Square Foot in Rent Per Occupancy Occupancy
Facilities Growth Growth Growth 1996 1995 Square Foot 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S><C>
March 31 98 7.2% 5.1% 7.9% $9.61 $8.93 7.6% 88% 87%
June 30 132 8.0% 7.4% 8.3% $9.59 $8.91 7.6% 90% 90%
September 30 146 7.1% 9.4% 6.1% $9.60 $8.98 6.9% 89% 90%
December 31 153 6.6% 5.5% 7.1% $9.61 $8.94 7.5% 87% 88%
Year, 1996 90 7.7% 3.1% 9.7% $9.99 $9.27 7.8% 87% 88%
</TABLE>
The Company was able to aggressively increase its Rent Per Square Foot on
facilities it has owned for at least one year, in both 1997 and 1996 with only a
slight drop in Physical Occupancy. This can be attributed, in part, to
Company-wide sales and marketing programs that are customized for each location
by facility and district managers who have substantial authority and effective
incentives. The Company's policy is to raise rents, both rates to existing
customers and its "street" rates for new customers, at all of its facilities at
least once a year regardless of the occupancy level. This increase typically
takes place in the spring, the beginning of the Company's highest rental season.
The Company increases its street rates throughout the year, based on facts and
circumstances at individual facilities. Physical occupancy is only one factor in
measuring the Company's same-store performance and must be examined in
conjunction with rate increases and expense control. In 1997, rate increases
averaging 7.3% were offset by lower occupancies to produce same-store revenue
growth of 5.7%, or $4.4 million. When combined with the Company's focus on
expense control, which produced a decrease in operating expenses of 1.4%, or
$318 thousand, the NOI of the same-store facilities grew 8.7%, or $4.7 million.
The following table displays the same-store results for fiscal year 1997 for
the Company's five largest markets as measured by available square feet.
Same-store properties for fiscal year 1997 include all properties owned by the
Company since December 31, 1995.
<TABLE>
<CAPTION>
Number of % of TotalSame-store Same-storeSame-store Rent Per Rent Per % Increase Physical Physical
Same-store Available Revenue Expense NOI %Square Foot Square Foot in Rent Per Occupancy Occupancy
Market Facilities Square Feet Growth Growth Growth 1997 1996 Square Foot 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S><C>
S. California 30 9.6% 11.4% (0.2%) 17.0% $ 9.77 $ 8.94 9.3% 86.0% 82.0%
S. Florida 13 4.5% 0.9% (0.2%) 1.4% $12.63 $11.91 6.0% 84.7% 84.9%
Baltimore/Wash. 12 3.7% 6.9% (0.5%) 9.3% $15.16 $14.24 6.5% 89.2% 82.5%
Dallas, TX 7 2.8% 4.8% (2.9%) 9.0% $ 7.31 $ 6.92 5.6% 84.5% 88.4%
N. California 9 2.0% 13.4% (4.6%) 18.9% $16.65 $14.56 14.4% 96.6% 97.2%
</TABLE>
Southern California, the Company's largest market on a same-store basis,
performed exceptionally well during 1997. Physical Occupancy grew from 82% to
86% as a result of the continuing real estate recovery, and when combined with a
9.3% rate increase and a reduction in expenses, NOI grew 17.0% over 1996.
Primarily through 1997 acquisitions, the Company has doubled the square feet
owned in this market since December 31, 1995. Southern Florida was not a top
performer in 1997 primarily due to management issues that have been addressed.
Although rental rates were increased by 6.0% and Physical Occupancy remained
stable, revenue increased only 0.9% due to increased discounting of rental
rates. The Baltimore/Washington market experienced a large increase in Physical
Occupancy due to increased market demand and the maturation of the properties in
this market. When coupled with a 6.5% increase in rates, same-store revenues
increased 6.9% and NOI increased by 9.3%. The Company views this market as
favorable for development and currently has nine properties in construction or
construction planning in the Baltimore/Washington area. Dallas, Texas saw a
decrease in Physical Occupancy related to increased competition that opened in
1997. This decrease was offset by increasing rates and decreasing expenses,
which produced NOI growth of 9.0%. Northern California proved to be a strong
13
<PAGE>
Storage USA, Inc.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (cont.)
market in 1997. With the 1996 Physical Occupancy at 97.2%, the potential to
increase rates while maintaining full Physical Occupancy was high. The Company
increased rates an average of 14.4% with only a slight decrease in Physical
Occupancy, which remained close to 97%. When combined with a decrease in
expenses of 4.6%, NOI increased 18.9%. The Company has almost tripled the amount
of square feet owned in this market since December 31, 1995 and has several new
development projects in construction.
Same-store revenue growth slowed in 1997 and this trend is expected to
continue to a lesser degree in 1998, as facilities the Company has owned for two
or more years comprise a larger percentage of the same-store pool of facilities
each year. Revenue growth for a facility generally is greatest in the first year
following acquisition as the Company implements its higher base rate structure.
The Company's goal is to maintain yearly same-store revenue growth of 5.0% to
6.0%. In 1998, the Company is placing a focus on increasing physical occupancy
to recoup some of the potential income at the facilities while continuing its
strategy of increasing rental rates and controlling expenses.
In 1998, the Company believes it can generate same-store revenue growth of
5.0% to 6.0%, expense growth of 2.0% to 3.0% and NOI growth of 6.0% to 7.0%,
subject to the operating and other risks discussed in this section.
The untapped potential for new customers remains high. Based on Company
surveys performed in the fall of each year, 52% of its customers were first-time
users in 1996, and 49% in 1997. The Company believes that this low market
penetration, along with improving product quality and development of a more
educated consumer will continue to drive internal and external growth. The
increase in market penetration between 1996 and 1997 demonstrates that the
Company is achieving an increase in the awareness of the self-storage product to
consumers.
External Growth Strategy
Acquisitions
The Company continues to execute its strategy of acquiring suitably located
facilities that offer upside potential due to low occupancy rates, non-premium
pricing or where the Company's operating strategy would enhance performance. The
acquisition strategy provides both short-term and long-term returns for the
Company. Once acquired, the Company implements Storage USA operating methods,
allowing it to increase rates and trim excess expenses. Historically the Company
has acquired facilities at a minimum Cap Rate of 10, and through the application
of the Company's operating methods improves the initial Cap Rate approximately
75 basis points during the first year. After a year of operation, the acquired
facilities fall under the internal growth strategy and are managed accordingly
to provide long-term growth. During the year, the Company invested $353 million
to acquire 119 facilities containing 7.2 million square feet.
The following table summarizes the number of facilities acquired in 1997,
1996 and 1995 the cost, net rentable square feet and the weighted average cost
of acquisitions.
<TABLE>
<CAPTION>
Number Net Rentable Weighted
Year of Total Square Average
Acquired Facilities Cost Feet Cost
- --------------------------------------------------------------
<S> <C>
(in thousands)
1997 119 $353,000 7,183 $146,000
1996 82 $304,000 5,401 $116,000
1995 63 $220,000 4,428 $108,000
</TABLE>
It is important to note the weighted average cost of acquisitions in
addition to the total cost. The weighted average cost is calculated based on the
duration of time for which the acquired facilities were owned during the year.
The weighted average cost reflects the dollar amount of acquisitions that will
impact the net income of the Company during the full year of acquisition.
The Company remains committed to its policy of acquiring facilities at Cap
Rates of not less than 10 and generally is acquiring properties at Cap Rates
between 10.0-10.5. The original acquisition facilities the Company owned at
December 31, 1994 continued to realize their upside potential. The 96 facilities
generated returns of 12.3% in 1995, 13.1% in 1996, and 13.6% in 1997 (calculated
by dividing NOI by the total acquisition costs of the facilities). The following
chart illustrates the return that has been achieved on acquisitions purchased
between 1994 and 1996 during the first full year through 1997.
1st Full Year 2nd Full Year 3rd Full Year
------------- ------------- -------------
1994 Acquisitions 12.1% 12.6% 13.4%
1995 Acquisitions 10.8% 11.9%
1996 Acquisitions 11.1%s
In 1998, the Company has budgeted to invest its acquisition capital in an
amount consistent with the trend in prior years. The Company believes the
potential for future acquisitions remains strong due to the highly fragmented
nature of the self-storage industry. The Company is the second largest operator
in the industry yet owns or manages only approximately 2.5% of the total square
feet in the industry. The top ten operators control approximately 16% and the
top 50 control approximately 23%.
14
<PAGE>
Storage USA, Inc.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (cont.)
The Company's acquisitions entail risks that investments will fail to
perform as expected and that judgements with respect to acquisition prices and
costs of improvements will be inaccurate, as well as general real estate
investment risks. In addition, there can be no certainty as to the availability
of facilities in markets the Company finds attractive and at prices the Company
is willing to pay. In addition, the timing of acquisitions throughout the year
may impact the Company's financial performance. See "Forward Looking Statements
and Risk Factors" in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, for further discussion of risks relating to the Company's
business that could affect anticipated results.
Development
The third point of focus in the Company's growth strategy has been implemented
to provide long term gains that could exceed returns achieved by acquired
facilities. By developing properties, the Company is able to capitalize on
unsaturated markets where suitable acquisition opportunities may be minimal or
nonexistent. In evaluating a particular site or market, the Company considers
many factors. Each development project is supported by extensive research to
determine the viability of the site and the potential for success. During the
year, the Company placed in service five development properties at a cost of
$16.5 million, adding 332 thousand square feet, and expanded the available
square feet at eight facilities, adding 132 thousand square feet for a cost of
$6.1 million.
The following table lists the development properties placed in service in 1996
and 1997 and provides data relevant to their operating performance.
<TABLE>
<CAPTION>
Physical
Available Occupancy Rent Per Development Dilution on
Date Opened Square Feet at 12/31/97 Square Foot Cost 1997 Yield* 1997 FFO
- ------------------------------------------------------------------------------------------------------------------------------------
<S><C>
(in thousands)
Reston, VA Feb. 1996 54,390 84% $16.63 $ 2,812 14.28% n/a
Clarendon, VA May 1996 71,039 76% $18.13 $ 6,466 8.54% n/a
- ------------------------------------------------------------------------------------------------------------------------------------
Total/Average 1996 125,429 79% $17.48 $ 9,278 10.28% n/a
Malvern, PA Sept. 1997 63,360 63% $12.31 $ 3,261 8.89% n/a
Collierville, TN Sept. 1997 69,300 23% $11.14 $ 3,526 (1.96)% $(117)
Campbell, CA Sept. 1997 39,630 18% $22.66 $ 3,506 (2.41)% $(122)
West Palm Beach, FL Dec. 1997 74,140 9% $11.47 $ 3,780 (1.60)% $ (30)
Memphis, TN Dec. 1997 86,025 8% $11.55 $ 2,434 (4.76)% $ (26)
- ------------------------------------------------------------------------------------------------------------------------------------
Total/Average 1997 332,455 25% $13.12 $16,507 0.62% $(367)
</TABLE>
*Note: The 1997 yield on the properties placed in service in 1997 is an
annualized figure and may not reflect actual results of operations for a full
year.
The two properties opened in 1996 have performed exceptionally well and are
achieving returns well ahead of the Company's minimum expectations. The
Company's minimum expected internal rate of return on investment on development
opportunities is 12.5% at the first level of stabilized occupancy, which is
expected to be reached within 24 months. The two facilities on average have
reached Physical Occupancies of 79% and 1997 returns of 10.28% and are expected
to return over 14% in 1998. These two facilities received two of the four
Facilities of the Year awards presented by Mini-Storage Messenger Magazine in
1997. All of the properties opened in 1997 received certificates of occupancy in
the third and fourth quarters and thus are still in the lease-up phase. On
average, these properties have reached Physical Occupancies of 25% and 1997
annualized returns of 0.62%. The budgeted average return on these properties was
(0.4)% in 1997 and the Company is expecting approximately a 5% average return on
these properties in 1998.
Development properties provide the potential for long-term returns greater
than those that can typically be achieved by acquired facilities. However,
during the lease-up period, losses on these properties will reduce the Company's
earnings and FFO. During 1997, the development properties placed in service in
1997 reduced FFO by $(367) thousand, or $(0.014) per share. The Company is
increasing its development investing and is planning to place in service between
$65 million and $80 million of development properties in 1998. The level of
development is monitored closely by management to ensure that dilution of FFO
caused by development properties in lease-up does not materially affect FFO
growth. In addition to risks associated with owning and operating established
facilities, development involves risks relating to delays in construction and
lease-up, both of which could reduce the Company's return. The Company believes
that favorable supply and demand conditions support the Company's external
growth strategy. According to industry data, there were only approximately 440
construction starts in 1997. Barriers to entry, including availability of
development capital and the absence in many markets of appropriate zoning for
self-storage, contribute to the favorable supply and demand balance in the
business.
At December 31, 1997, the Company had $31.3 million of development in
process consisting of 21 new construction projects and 18 expansions with total
estimated costs of $99.0 million. These 39 projects have expected completion
dates ranging from
15
<PAGE>
Storage USA, Inc.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (cont.)
the first quarter of 1998 through the second quarter of 1999. These developments
are currently underway in the following markets: Baltimore, Maryland/Washington,
D.C., Memphis, Tennessee, Northern California, Massachusetts and Central
Florida.
Franchising
Storage USA Franchise Corp. ("Franchise") was established in 1996. The Company
owns a 97.5% economic interest in Franchise and 100% of its Class B Non-Voting
Common Stock. The investment is intended to enhance the Company's short and
long-term income streams and to provide a potential pipeline of future
acquisitions which have been designed and constructed to Storage USA's
standards. Franchise offers a turnkey package including access to capital,
analysis of potential markets and sites, facility design, general contractor
services and facility management. A new Franchisee has several options in
entering a relationship with Franchise. A Franchisee can choose to engage
Franchise as the general contractor and as the manager of the facility's
operations. Franchise initially recognizes income through franchise fees and
general contractor fees and the revenue stream continues in the form of
royalties/management fees. A Franchisee can choose to access its capital
through a loan program underwritten by the Company. Under this option, a
Franchisee can borrow directly from the Company or obtain a guarantee on a loan.
In this instance, Franchise will receive an equity interest in the franchised
facility as compensation for introducing the Franchisee to the lender, whether
the lender is the Company or a third party.
The Company owns a 97.5% economic interest in Franchise and recognizes a
proportionate share of its earnings or losses. In addition, the Company
recognizes interest income on loans to Franchisees. The Company has a right of
first refusal on any sale of the franchised facilities and anticipates
exercising that right when the franchisee desires to sell the facility.
As of December 31, 1997, Franchise has seven facilities open and operating,
43 under development and 23 in due diligence. Of the total 73 facilities,
approximately 43 are joint venture properties that include earnings
participation by Franchise (this figure is subject to change, as Franchisees in
the due diligence stage have not definitively chosen which arrangement they will
use). The franchised facilities in total represent approximately $250 million in
potential future acquisitions. At December 31, 1997, the Company has committed
to loan $64.5 million, of which $24.5 has been funded, and has guaranteed $22.4
million, of which $15.8 million has been funded. The Company's proportionate
share of the net income of Franchise is included in other income.
Capital Strategy
The Company expects to finance its external growth strategy primarily through
the issuance of debt and equity (common and preferred) securities. On January
21, 1998, the REIT and the Partnership filed a joint shelf registration
statement with the Securities and Exchange Commission relating to $900 million
of securities, including up to $500 million of common stock, preferred stock,
depositary shares and warrants of the REIT and up to $400 million of unsecured,
non-convertible senior debt securities of the Partnership. An additional $50
million of unsecured, non-convertible senior debt securities and $150 million of
equity securities are issuable under the REIT's existing shelf registration
statement permitting the REIT and the Partnership to currently issue up to an
additional $1.1 billion of new securities.
The Company will fund acquisitions initially through working capital,
established lines of credit, and units of limited partnership interest in SUSA
Partnership, L.P. ("Units"). The lines of credit represent a total available
credit facility of $190 million. The Company plans to issue some combination of
unsecured notes payable, common stock or preferred stock in 1998 depending on
prevailing market conditions, which will immediately be used to pay down the
lines of credit. The Company's goal is to maintain a capital structure that will
provide a lower cost of capital than it currently experiences and provide a
conservative balance between permanent capital and term capital. The capital
structure at December 31, 1997 is 28.1% debt and 71.9% Common Stock and Units.
No preferred stock has been issued.
Results of Operations
The following table reflects the profit and loss statement for the years ended
1997, 1996 and 1995 based on a percentage of total revenues and is used in the
discussion that follows:
<TABLE>
<CAPTION>
For the year
ended December 31, 1997 1996 1995
- ------------------------------------------------------------------
<S><C>
REVENUES
Rental income 97.0% 97.3% 97.5%
Management income 0.0% 0.7% 1.6%
Other income 1.7% 1.4% 0.7%
Interest income 1.3% 0.6% 0.2%
- ------------------------------------------------------------------
Total income 100.0% 100.0% 100.0%
EXPENSES
Property operations 24.4% 26.0% 27.1%
Taxes 7.8% 8.2% 7.2%
General and administrative 4.2% 3.8% 3.8%
- ------------------------------------------------------------------
Earnings before
depreciation and
interest (EBITDA) 63.6% 62.0% 61.9%
Depreciation and
amortization 12.1% 11.7% 12.6%
Interest 11.1% 7.6% 4.2%
- ------------------------------------------------------------------
Income before minority
interest 40.4% 42.7% 44.9%
</TABLE>
16
<PAGE>
Storage USA, Inc.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (cont.)
Rental income increased $52.7 million, or 50.2% in fiscal year 1997 and
$38.6, or 58.1% in fiscal year 1996. These increases are primarily a result of
the Company's acquisitions. In 1997, the Company acquired 119 facilities
containing 7.2 million square feet and in 1996 acquired 82 facilities containing
5.4 million square feet. These acquisitions increased the available square feet
owned by the Company by 44% in 1997 and 50% in 1996. For more details on the
Company's acquisitions see "Acquisitions." The current year acquisitions added
$21.7 million in rental income in 1997 and $19.5 million in 1996. The remainder
of the increase in rental income is primarily a result of recognizing a full
year of rental income on the previous year's acquisitions and the Company's
internal growth strategy. In 1997, the rental income from same-store facilities
increased $4.4 million as a result of rate increases of 7.3% and was partially
offset by a slight drop in Physical Occupancy from 87% to 86%. In 1996
same-store facilities added $3.8 million in revenues as a result of rate
increases of 7.8% and a slight decrease in Physical Occupancy from 88% to 87%.
Same-store results are more fully discussed in the section "Internal Growth
Strategy".
Other income grew $1.3 million in fiscal year 1997 and $1.0 million in
fiscal year 1996. All of the Company's management contracts were transferred to
Franchise on January 1, 1997, and the Company's proportionate share of the
management fee revenue is included in other income at December 31, 1997.
Management income included in Franchise earnings totaled $809 thousand in 1997.
The increase over 1996 management income of $701 thousand is attributable to
additional management contracts that the Company entered into in 1997. The 1996
management income declined $371 thousand from the $1.1 million reported in 1995,
as the Company purchased 16 self-storage facilities during 1996 that had been
managed by the Company during 1995. The remaining increase in other income is
primarily due to growth in the sale of locks and packaging materials, which is
also included in the earnings of Franchise, and increases in truck rental and
billboard/cell tower income attributable to acquisitions purchased in those
years.
As a percentage of revenues, cost of property operations and maintenance
declined from 27.1% in 1995 to 26.0% in 1996 to 24.4% in 1997. The decline as a
percentage of revenues is explained by same-store revenue growth outpacing
expense growth, and significant acquisitions late in the fourth quarter. In
1997, same-store revenues increased 5.7% while operating expenses decreased
1.4%, and in 1996 same-store revenues increased 7.7% while operating expenses
increased only 3.1%. In addition, the Company acquired over $140 million and
$100 million of acquisitions late in the fourth quarter of 1997 and 1996,
respectively. The Company historically benefits in the first month or two
following the acquisition of a facility as the new revenues precede the costs of
implementing the Company's management and operational strategy.
Tax expense as a percentage of revenues was 7.8%, 8.2% and 7.2% in 1997,
1996 and 1995, respectively. In 1997, tax expense as a percentage of revenues
declined slightly as a result of revenue growth outpacing tax expense growth.
The growth in taxes in 1996 was caused by increased assessments on properties
acquired during late 1994 and 1995.
General and administrative expense ("G&A") as a percentage of revenues
increased during 1997 to 4.2% from 3.8% in 1996 and 1995. G&A increased $2.6
million in 1997 as compared to 1996 and $1.6 million in 1995 as compared to
1994. The growth in G&A is a result of the expansion of the Company's
administration, acquisition and development, management information systems and
human resource departments in connection with the implementation of its internal
and external growth strategy.
The increase in depreciation and amortization expense by $7.1 million in
1997 and $4.0 million in 1996 primarily reflects the Company's acquisition of
approximately $258 million, $222 million and $161 million of depreciable assets
in 1997, 1996 and 1995, respectively.
Interest expense was $18.1 million in 1997, $8.2 million in 1996, and $3.0
million in 1995. The increase in interest expense between 1997 and 1996 is due
to the issuance of $400 million of unsecured notes issued between November of
1996 and December of 1997. The notes account for approximately $13.5 million of
the additional interest expense. The remainder of the expense is from weighted
average borrowings of $45.5 million under the Company's lines of credit at a
weighted average interest rate of 6.96% and $42.7 million of mortgages at a
weighted average rate of 9.8%. The Company financed its 1997 external growth
primarily through the issuance of debt as the Company took advantage of
favorable market conditions and lowered the Company's long-term cost of capital.
Interest expense in 1996 represents weighted average borrowings of $92.2 million
under the Company's lines of credit at a weighted average interest rate of 6.99%
as compared to 1995 weighted average borrowings and interest rate of $47.2
million and 6.4%, respectively. In addition, on November 4, 1996, the
Partnership issued $100 million of 7.125% notes due November 1, 2003, and during
1996 assumed $37.3 million of mortgages on facilities acquired. Interest expense
will continue to rise in 1998 as the full effect of $400 million of notes
payable outstanding for the entire year will be recognized as well as the effect
of additional borrowings that may occur in the upcoming year. For a more
detailed review of 1998 financing see the section entitled "Capital Strategy."
Interest income grew to $2.1 million in 1997 from $687 thousand in 1996, an
increase of $1.4 million. Approximately $1.1 million of the increase is from
interest earned on loans made from the Company to
17
<PAGE>
Storage USA, Inc.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (cont.)
franchisees of Franchise. Most of these loans were made in the third and fourth
quarters of 1997 and with additional loans that will be made in 1998, this
income will continue to grow. The remainder of the increase is from interest
earned on amounts outstanding under the 1995 Employee Stock Purchase and Loan
Plan (the "1995 Stock Plan") and earnings on overnight deposits. The increase in
interest income in 1996 of $521 thousand from $166 thousand in 1995 was due to
interest earned on amounts outstanding under the 1995 Stock Plan and earnings on
overnight deposits.
Gain on exchange of storage facilities of $2.6 million in 1997 and $288
thousand in 1996 represents gains on the disposition of the Company's
investments in storage facilities that were exchanged for cash and other
self-storage facilities. In 1997 the Company exchanged six properties in
Illinois, South Carolina and Louisiana for eight properties in Tennessee and
Oklahoma. In 1996 the Company exchanged one facility in Florida for two in
Oklahoma.
Liquidity and Capital Resources
Cash provided by operating activities was $72.2 million in 1997 as compared to
$59.5 million in 1996 and $38.3 million in 1995. These increases are primarily a
result of the significant expansion of the Company's portfolio. In 1997 and
1996, the Company acquired 119 facilities and 82 facilities respectively. The
items affecting the operating cash flows are discussed more fully in the
"Results of Operations" section.
Cash used in investing activities of $363 million in 1997, $277 million in
1996 and $217 million in 1995 was primarily invested in the acquisition of
self-storage facilities. 119, 82 and 63 facilities containing 7.2 million, 5.4
million and 4.4 million square feet, were acquired in 1997, 1996 and 1995,
respectively. In 1997, $10.2 million in cash was received in an exchange
transaction in which the Company exchanged several facilities with another
self-storage REIT. In addition to acquisitions, $40.9, $3.8 and $4.8 million was
invested in 1997, 1996 and 1995, respectively, for development properties. The
Company placed in service five development properties and eight expansion
properties in 1997 and two and five in 1996, respectively. There were 21
development properties and 18 expansions in process with $31.3 million invested
at December 31, 1997. The total budget on these properties is $99.0 million. The
Company also made loans to franchisees of Franchise during 1997 in the amount of
$24.5 million. The Company initially funds its capital requirements primarily
through the available lines of credit and refinances these with long-term
capital in the form of equity and debt securities. The lines bear interest at
various spreads over LIBOR. In December 1997, the available credit under these
lines was increased from $105 million to $190 million. Amounts outstanding under
the lines of credit bore interest at a weighted average rate of 6.91% in
February, 1998. The Company had net repayments during 1997 and 1996 of $20.9
million and $54.9 million, respectively, and net borrowings in 1995 of $103.6
million.
Between November 1996 and December 1997, the Company issued $400 million of
notes payable. The notes are unsecured obligations of the Partnership, and may
be redeemed at any time at the option of the Partnership, subject to certain
terms and conditions. The combined notes carry a weighted average interest rate
of 7.46% and were issued at a price to yield a weighted average of 7.70%. The
terms of the notes are staggered between seven and thirty years, maturing
between 2003 and 2027.
The Company is restricted on the amount of debt it can incur under the
Amended and Restated Unsecured Revolving Credit Agreement dated December 23,
1997, with the First National Bank of Chicago and various other banks (the
"Credit Agreement"). According to these covenants, the Company must maintain the
following:
<TABLE>
<CAPTION>
Minimum Amount at
Covenant Amount 12/31/97
- ------------------------------------------------------------------------
<S> <C>
Debt service coverage ratio > or = 2.5x 4.6x
Consolidated tangible
net worth > or = $772 million $822 million
Consolidated total indebtedness
to total tangible assets < or = 45% 36.6%
Consolidated secured
indebtedness to total
tangible assets < or = 15% 3.3%
Unencumbered assets to
consolidated senior unsecured
indebtedness > 2.25x 2.73x
Annualized consolidated
cash flow to consolidated
total indebtedness > 15% 24.6%
</TABLE>
The debt policy of the Company, which is subject to change at the discretion
of the Company's Board of Directors, is to limit total indebtedness to the
lesser of 50% of total assets at cost or that amount that will sustain a minimum
debt service coverage ratio of 3:1.
On March 11, 1997, the Company issued 1.4 million shares of Common Stock for
an aggregate purchase price of $50.7 million. On March 17, 1997, the
underwriters exercised their option to purchase 210 thousand additional shares
of Common Stock for an aggregate purchase price of $7.6 million. On March 28,
1997, Security Capital U.S. Realty ("USRealty"), an affiliate of Security
Capital Group, purchased 851 thousand shares of Common Stock directly from the
Company through the exercise of its participation right under the Strategic
Alliance Agreement, dated March 1, 1996,
18
<PAGE>
Storage USA, Inc.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (cont.)
for net proceeds of $32.0 million. USRealty owned 38.3% of the Company as of
December 31, 1997. The Company issued 92 thousand shares of Common Stock valued
at $3.5 million in exchange for self-storage properties in 1997, and 115
thousand shares of Common Stock valued at $4.4 million to officers of the
Company in exchange for notes receivable in accordance with the 1995 Stock Plan.
During 1996, pursuant to the Strategic Alliance Agreement, and related Stock
Purchase Agreement, USRealty purchased 7.0 million shares of Common Stock at
$31.30 per share in three fundings. The initial purchase of 1.9 million shares
for $61 million occurred on March 19, 1996. The second funding of 1.9 million
shares for $60 million took place on July 8, 1996. The final funding of 3.2
million shares for $99 million took place on September 30, 1996. On June 7,
1995, the Company issued 4.0 million shares of Common Stock to the public for
net proceeds of $107.6 million. The proceeds of each of the Common Stock
offerings have been used to repay indebtedness under the Company's lines of
credit, to fund the purchase of acquisitions and for working capital.
The Company assumed $7.1 million of mortgages on facilities acquired during
1997, $37.3 million in 1996 and $2.4 million in 1995. During 1997 $12.1 million
of mortgages were paid off. At December 31, 1997, the Company had $32.5 million
of fixed rate mortgages with a weighted average interest rate of 10.3% and $10.3
million of variable rate mortgages with a weighted average interest rate of
8.3%. These mortgages mature at various dates through 2021.
During 1997, 1996 and 1995, the Company issued 949 thousand, 901 thousand
and 600 thousand Units valued at $35.7 million $30.7 million and $18.0 million,
respectively. These Units were issued in exchange for self-storage facilities or
entities owning self-storage facilities. At December 31, 1997, the Company had
2.8 million Units outstanding. 82 thousand Units are redeemable for an amount
equal to their fair market value ($3.3 million, based upon a price per Unit of
$39.9375 at December 31, 1997) payable by the Company either in cash or (at the
Company's option, based upon a determination by the Company's Board of Directors
that the Company's anticipated cash requirements and anticipated cash flow make
a lump sum payment imprudent) by a promissory note payable in quarterly
installments over two years with interest at the prime rate. At December 31,
1997, 1.8 million Units held by other Limited Partners were redeemable, at the
option of such Limited Partners, having passed the first anniversary of their
issuance, for amounts equal to the then fair market value of their Units ($72.8
million, based upon a price per Unit of $39.9375 at December 31, 1997) payable
by the Company in cash or, at the option of the Company, in shares of the
Company's Common Stock at the initial exchange ratio of one share for each Unit.
It is anticipated that a source of funds for any such cash redemption will be
retained cash flow or proceeds from the future sale of securities of the Company
or other Company indebtedness. The Company has agreed to register under the
Securities Act of 1933 any shares of the Company's Common Stock issued upon
redemption of Units.
On January 21, 1998, the Company filed a shelf registration statement
relating to $900 million of securities, for a total shelf capacity of $1.1
billion as more fully discussed under "Outlook-Capital Strategy".
In 1998 the Company anticipates issuing some combination of unsecured notes
payable, common stock or preferred stock depending on prevailing market
conditions. The proceeds from any debt or equity offering would be used to repay
borrowings under the Company's lines of credit and for general purposes. As a
general matter, the Company anticipates utilizing its lines of credit as an
interim source of funds to acquire and develop self-storage facilities and
repaying the credit lines with longer-term debt or equity when management
determines that market conditions are favorable. The Company believes that the
combination of debt or equity issuances pursuant to the shelf registration
statements, in addition to borrowings under its credit facilities and issuances
of Units, as described above, will provide the Company with necessary liquidity
and capital resources to meet the requirements of its operating strategies in
1998.
The Company expects to incur approximately $3.4 million for scheduled
maintenance and repairs during the next twelve months and approximately $5.7
million to conform facilities acquired during 1997, 1996, 1995, and 1994 to
Company standards.
Funds from Operations ("FFO")
The Company believes FFO should be considered in conjunction with net income and
cash flows to facilitate a clear understanding of its operating results. FFO
should not be considered as an alternative to net income as a measure of the
Company's financial performance or as an alternative to cash flows from
operating activities as a measure of liquidity. FFO does not represent cash
generated from operating activities in accordance with GAAP and is not
necessarily indicative of cash available to fund cash needs. Effective January
1, 1996, the National Association of Real Estate Investment Trusts amended its
definition of FFO. The Company presented its 1997 and 1996 FFO under the amended
method and restated prior years FFO. As such, the Company's FFO may not be
comparable to similarly titled measures of other REITs that may have not
restated prior year's FFO under the amended method or that calculate FFO
differently.
19
<PAGE>
Storage USA, Inc.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (cont.)
The following table illustrates the components of the Company's FFO for the
years ended December 31, 1997, 1996 and 1995:
<TABLE>
Year ended Year ended Year ended
December 31, December 31, December 31,
1997 1996 1995
- ----------------------------------------------------------------------------
<S><C>
(in thousands)
Net Income $62,416 $43,526 $29,153
Gain on exchange of assets (2,569) (288) --
Depreciation of revenue
producing assets 18,783 11,865 6,996
Amortization of non compete -- 83 252
Amortization of lease
guarantees -- 70 385
- ----------------------------------------------------------------------------
Consolidated FFO 78,630 55,256 36,786
Minority interest share of
gain on exchange of asset 208 17 --
Minority interest share of
depreciation & amortization (1,523) (684) (334)
- ----------------------------------------------------------------------------
FFO available to
shareholders $77,315 $54,589 $36,452
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company had weighted average common shares outstanding of 26,797,000,
20,861,000 and 15,612,000, for the years ended December 31, 1997, 1996 and 1995,
respectively. The Company distributed $2.40, $2.25 and $2.04 per common share in
1997, 1996 and 1995, respectively. The Company's payout ratio (the per share
ratio of common dividends declared to FFO available to shareholders) was 83.0%,
85.9% and 87.6% for 1997, 1996 and 1995, respectively.
The Company, as a qualified REIT, is required to distribute a substantial
portion of its net income as dividends to its shareholders. While the Company's
goal is to generate and retain sufficient cash flow to meet its operating,
capital and debt service needs, its dividend requirements may require the
Company to utilize its bank lines of credit and other sources of liquidity to
finance property acquisitions and development, and major capital improvements.
The Company believes that its liquidity and capital resources are adequate
to meet its cash requirements for the next twelve months. Portfolio expansion
and repayment of principal on Company indebtedness represent the Company's
primary long-term liquidity requirements. The Company does not expect to
generate sufficient funds from operating cash flow to meet such long-term
liquidity needs and intends to finance them primarily through borrowings under
its lines of credit, debt or equity offerings, or additional borrowings for such
purpose.
Competition
The Company monitors the development of self-storage facilities in its markets.
The Company continues to see four markets; Atlanta, GA, Las Vegas, NV,
Albuquerque, NM and Dallas, TX, in which we believe overbuilding has occurred.
In these markets the Company may experience a minimal reduction in Physical
Occupancy and less growth in rental rates than other markets. As a result of the
geographic diversity of the Company's portfolio, the Company does not expect the
potential for excess supply in these markets to have a significant impact on its
financial condition or results of operations. Of the 35 markets where the
Company currently owns facilities, only two, representing 13 facilities,
experienced a reduction in same-store NOI in 1997.
Inflation
The Company does not believe that inflation has had or will have a direct effect
on its operations. Substantially all of the leases at the facilities allow for
monthly rent increases which provide the Company with the opportunity to achieve
increases in rental income as each lease matures.
Seasonality
The Company's revenues typically have been higher in the third and fourth
quarter primarily because the Company increases its rental rates on most of its
storage units at the beginning of May, and to a lesser extent because
self-storage facilities tend to experience greater occupancy during the late
spring, summer, and early fall months due to the greater incidence of moves
during those periods. The Company believes that its tenant mix, rental
structure, and expense structure provide adequate protection against undue
fluctuations in cash flows and net revenues during off-peak seasons. Thus, the
Company does not expect seasonality to materially affect distributions to
shareholders.
"Year 2000" Compliance
The Company is diligently investigating all of its computer systems for "Year
2000" compliance. The Company has written verification in the form of letters or
statements made by the vendors, that all of its primary financial software is
"Year 2000" compliant. The Company's network software is the latest version
available and is also represented to be "Year 2000" compliant. The majority of
the Company's computers have been purchased within the past two years and are
20
<PAGE>
Storage USA, Inc.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (cont.)
certified by NSTL to function properly through the turn of the millennium or can
be adapted to function properly with a system BIOS upgrade that can be obtained
free of charge. The Company has obtained verbal verification on the compliance
of its operational software, which is in the process of being updated to a new
Windows version, but is awaiting written confirmation. In addition to the
Company's main computer systems, the Company is in the process of contacting
vendors of its minor systems to ensure "Year 2000" compliance. The Company
anticipates that conforming its systems to be "Year 2000" compliant will not
have a material impact on its financial results.
Recent Accounting Developments
See Note 2 "Summary of Significant Accounting Policies," under the heading
"Income per Share," and Note 14, "Recent Accounting Developments" in the Notes
to Consolidated Financial Statements.
Legal Proceedings
The Company is the subject of a purported national class action filed on
September 25, 1997, in the Superior Court of the District of Columbia, Nelda
Perkins v. Storage USA, Inc., Civil Action No. 97-CA97426, seeking recovery of
certain late fees paid by Company tenants since September 1993, treble damages,
unspecified punitive damages and an injunction against further assessment of
similar fees. The Company has filed its initial response in the case, believes
it has defenses to the claims and intends to defend the suit vigorously. While
the ultimate resolution of this case cannot be currently determined, management
believes that the aggregate liability or loss, if any, resulting from this claim
will not have a material adverse effect on its financial position. However, if
during any period the potential contingency should become probable, the results
of operations in that period could be materially affected.
Qualification as a REIT
The Company intends to operate so as to qualify as a REIT under the Internal
Revenue Code (the "Code"). Qualification as a REIT involves the application of
highly technical and complex rules for which there are only limited judicial or
administrative interpretations. The complexity of these rules is greater in the
case of a REIT that holds its assets in partnership form. Furthermore, there are
no controlling authorities that deal specifically with many tax issues affecting
a REIT that operates self-storage facilities. The determination of various
factual matters and circumstances not entirely within the Company's control may
affect its ability to qualify as a REIT. In addition, new regulations,
administrative interpretations or court decisions could have a substantial
adverse effect with respect to the qualifications as a REIT or the federal
income tax consequences of such qualification. If the Company were to fail to
qualify as a REIT in any taxable year, the Company would not be allowed a
deduction for distributions to shareholders in computing its taxable income and
would be subject to federal income tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates. Unless entitled
to relief under certain Code provisions, the Company also would be disqualified
from treatment as a REIT for the four taxable years following the year during
which qualification was lost. As a result, the cash available for distribution
to shareholders would be reduced for each of the years involved. Although the
Company currently intends to operate in a manner designed to qualify as a REIT
it is possible that future economic, market, legal, tax or other considerations
may cause the Board of Directors, with the consent of a majority of the
shareholders, to revoke the REIT election.
On February 2, 1998, the Clinton Administration released a summary of its
proposed budget plan, which contained provisions that, if enacted, would affect
REITs, including the Company (the "REIT Proposals"). One such provision would
prohibit REITs from owning more than ten percent of the value of all classes of
stock of a third-party service subsidiary corporation that generates
nonqualifying income under the 95 percent gross income test. Because the Company
owns more than 10% of the value of Franchise, the REIT Proposals could adversely
affect the manner in which the Company structures its ownership of Franchise and
the magnitude of the franchising and management activities conducted by the
Company in the future. It is important to note that the REIT Proposals are only
precursors to the first stage in a lengthy legislative process that may or may
not culminate in the passage of legislation affecting REITs. Therefore, the
Company is unable to determine whether the REIT Proposals will be enacted into
legislation and, if enacted, the impact any final legislation may have on the
Company.
21
<PAGE>
Storage USA, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, 1997 1996
- -------------------------------------------------------------------------------------------
<S><C>
(in thousands, except share data)
Assets
Investments in storage facilities, at cost:
Land $ 339,939 $235,139
Buildings and equipment 902,925 620,503
- -------------------------------------------------------------------------------------------
1,242,864 855,642
Accumulated depreciation (44,955) (26,573)
- -------------------------------------------------------------------------------------------
1,197,909 829,069
Cash & cash equivalents 1,172 1,323
Other assets 60,719 14,853
- -------------------------------------------------------------------------------------------
Total assets $1,259,800 $845,245
===========================================================================================
Liabilities & shareholders' equity
Notes payable $ 400,000 $100,000
Line of credit borrowings 31,843 52,730
Mortgage notes payable 42,766 45,724
Accounts payable & accrued expenses 11,137 7,616
Rents received in advance 7,457 5,640
Minority interest 71,182 45,297
- -------------------------------------------------------------------------------------------
Total liabilities 564,385 257,007
===========================================================================================
Commitments and contingencies
Shareholders' equity:
Common stock $.01 par value, 150,000,000 shares
authorized, 27,634,790 and 24,723,027 shares
issued and outstanding 276 247
Preferred stock $.01 par value, 5,000,000 shares
authorized, 0 shares issued and outstanding -- --
Paid-in capital 738,185 623,903
Notes receivable--officers (12,771) (10,253)
Deferred compensation (1,366) --
Accumulated deficit (15,831) (15,831)
Distributions in excess of net income (13,078) (9,828)
- --------------------------------------------------------------------------------------------
Total shareholders' equity 695,415 588,238
- --------------------------------------------------------------------------------------------
Total liabilities & shareholders' equity $1,259,800 $845,245
===========================================================================================
</TABLE>
See accompanying notes.
22
<PAGE>
Storage USA, Inc.
Consolidated Statements of Operations
<TABLE>
For the year ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S><C>
(in thousands, except per share data)
Property Revenues
Rental income $157,798 $105,091 $66,455
Management income -- 701 1,072
Other income 2,772 1,517 480
- -----------------------------------------------------------------------------------------------
Total property revenues 160,570 107,309 68,007
Property Expenses
Cost of property operations & maintenance 39,743 28,029 18,471
Taxes 12,620 8,903 4,900
General & administrative 6,766 4,122 2,568
Depreciation & amortization 19,667 12,618 8,586
- -----------------------------------------------------------------------------------------------
Total property expenses 78,796 53,672 34,525
- -----------------------------------------------------------------------------------------------
Income from property operations 81,774 53,637 33,482
Other Income (expense)
Interest expense (18,111) (8,244) (3,004)
Interest income 2,083 687 166
- ------------------------------------------------------------------------------------------------
Income before minority interest
and gain on exchange 65,746 46,080 30,644
Gain on exchange of self-storage facilities 2,569 288 --
- ------------------------------------------------------------------------------------------------
Income before minority interest 68,315 46,368 30,644
Minority interest (5,899) (2,842) (1,491)
- ------------------------------------------------------------------------------------------------
Net income $ 62,416 $ 43,526 $29,153
================================================================================================
Per common share:
Basic net income per share $ 2.33 $ 2.09 $ 1.87
- ------------------------------------------------------------------------------------------------
Diluted net income per share $ 2.31 $ 2.07 $ 1.86
================================================================================================
</TABLE>
See accompanying notes.
23
<PAGE>
Storage USA, Inc.
Consolidated Statements of Cash Flows
<TABLE>
For the year ended December 31, 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S><C>
(in thousands)
Operating Activities
Net income $ 62,416 $ 43,526 $ 29,153
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 19,667 12,618 8,586
Minority interest 5,899 2,842 1,491
Gain on exchange of self-storage facilities (2,569) (288) --
Changes in assets and liabilities:
Other assets (18,881) (2,801) (3,111)
Other liabilities 5,687 3,631 2,189
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 72,219 59,528 38,308
==================================================================================================================================
Investing Activities
Acquisition and improvements of storage facilities (307,704) (273,043) (212,332)
Proceeds from exchange of storage facilities 10,213 -- --
Development of storage facilities (40,856) (3,837) (4,842)
Loans to franchisees (24,541) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (362,888) (276,880) (217,174)
==================================================================================================================================
Financing Activities
Net borrowings (repayments) under lines of credit (20,887) (54,875) 103,605
Mortgage principal payments (12,726) (298) (79)
Mortgage principal borrowings 2,670 2,063 2,376
Minority investor cash contribution 489 -- --
Payments on notes receivable 1,842 -- --
Cash dividends (65,666) (47,934) (33,433)
Proceeds from issuance of stock 94,482 220,721 107,776
Proceeds from issuance of notes payable 296,131 99,140 --
Distribution to minority interests (5,817) (3,148) (1,698)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 290,518 215,669 178,547
==================================================================================================================================
Net (decrease) in cash and equivalents (151) (1,683) (319)
Cash and equivalents, beginning of period 1,323 3,006 3,325
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and equivalents, end of period $ 1,172 $ 1,323 $ 3,006
==================================================================================================================================
Supplemental schedule of non-cash activities:
Common stock issued in exchange for notes receivable $ 4,360 $ 3,541 $ 6,727
Mortgages assumed on storage facilities acquired $ 7,098 $37,289 $ 2,377
Land contributed for Partnership Units $ -- $ 1,162 $ --
Restricted stock issued $ 1,395 $ -- $ --
Exchange of Partnership Units for common stock $ 966 $ 613 $ --
Partnership Units issued as deferred payment on acquisition $ 349 $ -- $ --
Storage facilities acquired in exchange for Partnership Units $35,661 $30,726 $17,972
Storage facilities acquired in exchange for shares of common stock $ 3,547 $ -- $ --
==================================================================================================================================
</TABLE>
See accompanying notes.
24
<PAGE>
Storage USA, Inc.
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock
------------------- Notes Deferred Accum- Distributions Total
Number of Paid in Receivable- Compen- ulated in Excess of Shareholders'
Shares Amount Capital Officers sation Deficit Net Income Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S><C>
(in thousands, except share and per share data)
Balance at December 31, 1994 13,299 $133 $271,529 $ -- -- $(15,831) $ (1,140) $254,691
- ------------------------------------------------------------------------------------------------------------------------------------
Issuance of new shares of common
stock on June 7, 1995 4,025 40 107,517 -- -- -- -- 107,557
Issuance of new shares of common stock
to officers under the 1995 Employee
Stock Purchase and Loan Plan 230 2 6,725 (6,727) -- -- -- --
Issuance of new shares of common stock
under the Dividend Reinvestment and
Stock Purchase Plan and the 1993
Omnibus Stock Plan 8 1 218 -- -- -- -- 219
Net income -- -- -- -- -- -- 29,153 29,153
Distributions declared ($2.04 per share) -- -- -- -- -- -- (33,433) (33,433)
Adjustments to minority interest -- -- 6,163 -- -- -- -- 6,163
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 17,562 $176 $392,152 $ (6,727) -- $(15,831) $ (5,420) $364,350
===================================================================================================================================
Issuance of new shares of
common stock 7,029 69 220,459 -- -- -- -- 220,528
Issuance of new shares of common stock
to officers under the 1995 Employee
Stock Purchase and Loan Plan,
net of repayments 103 1 3,540 (3,526) -- -- -- 15
Issuance of new shares of common
stock under the Dividend Reinvestment
and Stock Purchase Plan and the
1993 Omnibus Stock Plan 29 1 805 -- -- -- -- 806
Net income -- -- -- -- -- -- 43,526 43,526
Distributions declared ($2.25 per share) -- -- -- -- -- -- (47,934) (47,934)
Adjustments to minority interest -- -- 6,947 -- -- -- -- 6,947
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 24,723 $247 $623,903 $(10,253) -- $(15,831) $ (9,828) $588,238
===================================================================================================================================
Issuance of new shares of
common stock 2,580 26 94,434 -- -- -- -- 94,460
Issuance of new shares of common stock
to officers under the 1995 Employee
Stock Purchase and Loan Plan,
net of repayments 151 1 5,755 (2,518) -- -- -- 3,238
Issuance of new shares of common
stock under the Dividend Reinvestment
and Stock Purchase Plan and the
1993 Omnibus Stock Plan 181 2 4,533 -- (1,395) -- -- 3,140
Deferred compensation expense -- -- -- -- 29 -- -- 29
Net income -- -- -- -- -- -- 62,416 62,416
Distributions declared ($2.40 per share) -- -- -- -- -- -- (65,666) (65,666)
Adjustments to minority interest -- -- 9,560 -- -- -- -- 9,560
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 27,635 $276 $738,185 $(12,771) $(1,366) $(15,831) $(13,078) $695,415
===================================================================================================================================
</TABLE>
See accompanying notes.
25
<PAGE>
Storage USA, Inc.
Notes to Consolidated Financial Statements
(dollar amounts in thousands, except share, Unit and per share data)
NOTE 1 ORGANIZATION
Storage USA, Inc. (the "Company") a Tennessee corporation, was formed in 1985 to
acquire, develop, construct, franchise and own and operate self-storage
facilities throughout the United States. On March 23, 1994, the Company
completed an initial public offering (the "IPO") of 6,325,000 shares of common
stock at $21.75 per share. The Company is structured as an umbrella partnership
real estate investment trust ("UPREIT") in which substantially all of the
Company's business is conducted through SUSA Partnership, L.P. (the
"Partnership"). Under this structure, the Company is able to acquire
self-storage facilities in exchange for units of limited partnership interest in
the Partnership ("Units"), permitting the sellers to at least partially defer
taxation of capital gains. At December 31, 1997 and 1996, respectively, the
Company had an approximately 90.7% and 92.9% partnership interest in the
Partnership.
The Partnership formed SUSA Management, Inc. ("SUSA Management") to provide
self-storage management to third parties and to engage in the retail sale of
locks, boxes and other move-related merchandise.
In 1996, the Company formed Storage USA Franchise Corp ("Franchise"), a
Tennessee corporation. The Partnership owns 100% of the non-voting common stock
of Franchise. The Partnership accounts for Franchise under the equity method and
includes its share of the profit or loss of Franchise in Other Income. Effective
January 1, 1997, SUSA Management transferred its management contracts and its
retail sales business to Franchise. As a result, SUSA Management had immaterial
revenue and expense in 1997.
At December 31, 1997, the Company owned and managed 394 self storage
facilities containing 25,623 square feet located in 31 states and the District
of Columbia.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company, the
Partnership and SUSA Management. All intercompany balances and transaction have
been eliminated. The Partnership accounts for Franchise under the equity method
and includes its share of the profit or loss of Franchise in Other Income.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses and
disclosure of contingent assets and liabilities. Actual results could differ
from those estimates.
Federal Income Taxes
The Company operates so as to qualify to be taxed as a Real Estate Investment
Trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code").
Generally, a REIT that complies with the Code and distributes at least 95% of
its taxable income to its shareholders does not pay federal tax on its
distributed income. Therefore, the statement of operations contains no provision
for federal income taxes.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with maturity
of three months or less to be cash equivalents.
Revenue Recognition
Rental income is recorded when due from tenants. Rental income received prior to
the start of the rental period is included in rents received in advance.
Other Income
Other income consists primarily of the proportionate share of earnings of
Franchise, commissions from truck rentals and revenue from the leasing of land
for cellular towers and billboards.
Interest Expense
Interest is capitalized on accumulated expenditures relating to the development
of certain qualifying properties. During 1997, 1996, and 1995, total cash paid
by the Company for interest was $18,316, $7,636, and $3,345, respectively, which
includes $1,866, $965, and $532, which was capitalized in 1997, 1996, and 1995,
respectively.
Interest Rate Management Agreements
The Company enters into interest rate risk management agreements to manage
interest rate risk associated with anticipated debt transactions. The Company
follows SFAS No. 80 "Accounting for Futures Contracts" which permits hedge
accounting for anticipatory transactions meeting certain criteria. Gains and
losses, if any, on these transactions are deferred and amortized over the terms
of the related debt as an adjustment to interest expense. Changes in the fair
value of the interest rate risk management agreements are not recognized in the
financial statements. In the event that the anticipatory transaction is no
longer likely to occur, the Company would mark the derivative to market and
would recognize any adjustment in the consolidated statement of operations. The
Company does not enter into interest rate risk management agreements for trading
or speculative purposes.
26
<PAGE>
Investment in Storage Facilities
Storage facilities are recorded at cost. Depreciation is computed using the
straight line method over estimated useful lives of 40 years for buildings and
improvements, and three to ten years for furniture, fixtures and equipment.
Expenditures for significant renovations or improvements that extend the useful
life of assets are capitalized. Repairs and maintenance costs are expensed as
incurred. Certain costs, principally payroll, directly related to real estate
acquisitions and development, are capitalized.
If there is an event or a change in circumstances that indicates that the
basis of the Company's property may not be recoverable, the Company's policy is
to assess any impairment of value. Impairment is evaluated based upon comparing
the sum of the expected future cash flows (undiscounted and without interest
charges) to the carrying value of the asset. If the cash flow is less, an
impairment loss is recognized for the amount by which the carrying amount of the
asset exceeds the fair value of the asset.
Minority Interest
The minority interest reflects the ownership interest of the limited partners
who hold Units in the Partnership. The Unit holders' share of the net income of
the Partnership is charged to minority interest expense and increases the
Company's liability. Distributions to Partnership Unit holders reduce the
Company's liability. At each reporting period, the Company calculates the amount
of equity allocable to the limited partners by multiplying the limited partners
percentage ownership of the Partnership by the total stockholders' equity. An
adjustment is made to the minority interest liability with a corresponding
adjustment reflected in the Statement of Shareholders' Equity.
Income Per Share
As of December 31, 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 "Earnings per Share," to report basic and diluted earnings per
share. As required by this statement, all prior periods have been restated.
Basic and diluted income per share is calculated by dividing net income by the
appropriate weighted average shares as presented in the following table:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------
<S><C>
Basic weighted average
common shares outstanding 26,797 20,861 15,612
Dilutive effect of stock options 212 162 93
- --------------------------------------------------------------
Diluted weighted average
shares outstanding 27,009 21,023 15,705
- --------------------------------------------------------------
</TABLE>
Reclassifications
Certain previously reported amounts have been reclassified to conform with the
current financial statement presentation.
NOTE 3 INVESTMENT IN STORAGE FACILITIES
The following summarizes activity during the periods:
<TABLE>
- ---------------------------------------------------------------
<S><C>
Cost
Balance at December 31, 1995 $ 509,297
Property acquisitions 305,760
Land acquisitions and joint
venture development 21,329
Facility expansions 8,986
Developments placed in service 8,679
Improvements 4,711
Property exchange (3,120)
- ---------------------------------------------------------------
Balance at December 31, 1996 $ 855,642
- ---------------------------------------------------------------
Property acquisitions 353,430
Facility expansions 4,969
Land acquisitions and joint
venture development 36,914
Improvements 9,680
Properties exchanged (17,771)
- ---------------------------------------------------------------
Balance at December 31, 1997 $1,242,864
- ---------------------------------------------------------------
Accumulated Depreciation
Balance at December 31, 1995 $ 14,561
Additions during the year 12,012
- ---------------------------------------------------------------
Balance at December 31, 1996 $ 26,573
Additions during the year 19,140
Properties exchanged (758)
- ---------------------------------------------------------------
Balance at December 31, 1997 $ 44,955
- ---------------------------------------------------------------
</TABLE>
The aggregate cost of real estate facilities for federal income tax purposes
was approximately $1,120,992 and $797,103 at December 31, 1997 and 1996,
respectively.
NOTE 4 OTHER ASSETS
Other assets consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------
<S><C>
Mortgage receivable $24,541 $ --
Other receivables 8,552 1,386
Deferred cost of issuances
of unsecured notes 6,916 2,766
Accounts receivable 3,363 2,289
Other 17,347 8,412
- --------------------------------------------------------------
$60,719 $14,853
- --------------------------------------------------------------
</TABLE>
27
<PAGE>
NOTE 5 MORTGAGE NOTES PAYABLE
Mortgage notes payable consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------
<S><C>
Conventional fixed rate $32,492 $36,666
Conventional variable rate 10,274 9,058
- ----------------------------------------------------------
Total $42,766 $45,724
- ----------------------------------------------------------
</TABLE>
Conventional fixed-rate mortgage notes included 15 mortgages encumbering
15 properties with a cost basis of $64,530 at December 31, 1997 and 13 mortgages
encumbering 13 properties with a cost basis of $68,572 at December 31, 1996.
Mortgage notes are generally due in monthly installments of principal and
interest and mature at various dates through 2021. At December 31, 1997 and
1996, this debt carried fixed rates of interest ranging from 6.0% to 11.5%
(10.3% weighted average) and 6.8% to 11.5% (10.14% weighted average),
respectively.
Conventional variable-rate mortgage notes consist of four loans encumbering
four properties with a cost basis of $16,519 and $13,523 at December 31, 1997
and 1996, respectively. The notes require monthly principal and interest
payments and mature between 1998 and 2016. At December 31, 1997 and 1996
conventional variable rate debt had interest rates ranging from 7.9% to 9.0%
(8.3% weighted average) and 7.8% to 9.7% (9.2% weighted average), respectively.
The aggregate principal payments of mortgage notes (fixed and variable rate)
for the five years subsequent to December 31, 1997 are as follows:
<TABLE>
<CAPTION>
<S><C>
1998 $ 5,672
1999 960
2000 1,036
2001 836
2002 919
Thereafter $33,343
</TABLE>
NOTE 6 NOTES PAYABLE
The Partnership has issued various senior unsecured notes (the "Notes") due on
various dates. The Notes are redeemable at any time at the option of the
Partnership in whole or in part, at a redemption price equal to the sum of: (a)
the principal amount of the Notes being redeemed plus accrued interest or (b) a
make-whole amount as more fully defined in the Notes prospectus. The Notes are
not subject to any mandatory sinking fund and are an unsecured obligation of the
Partnership. The Notes contain various covenants restricting the amount of
secured and unsecured indebtedness the Partnership may incur. The amounts and
maturities of the notes are as follows:
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------
Amount Maturity Interest
- --------------------------------------------------------------
<S><C>
$100,000 $100,000 November, 2003 7.125%
100,000 -- June, 2017 8.200%
100,000 -- December, 2007 7.000%
100,000 -- December, 2027 7.500%
</TABLE>
The proceeds from the issuances of the Notes were used to fund the purchase
of acquisitions and repay debt incurred under the revolving lines of credit,
which are used to finance the acquisition of self-storage facilities and for
working capital.
NOTE 7 LINE OF CREDIT BORROWINGS
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
Total lines of credit at
December 31 $190,000 $105,000
Borrowings outstanding at
December 31 $ 31,843 $ 52,730
Weighted average daily borrowing
during the year $ 45,610 $ 92,225
Maximum daily borrowing during
the year $168,379 $150,153
Weighted average daily interest
rate during the year 6.96% 6.99%
</TABLE>
At December 31, 1997, the Company had a $150,000 line of credit with a group
of commercial banks. This line was increased during 1997 from $75,000 available
at December 31, 1996. This line bears interest at various spreads over LIBOR
based on the Company's long-term debt ratings. The credit agreement matures on
November 15, 2000. At December 31, 1997, the Company had a $40,000 line of
credit with a commercial bank. This line was increased from the $30,000
available at December 31, 1996. The line bears interest at spreads over LIBOR
and is payable on demand. None of these agreements have compensating balance
requirements.
During 1997 the Company entered into a $75,000 bridge loan with the same
group of commercial banks as the $150,000 line of credit. The bridge loan had a
one-year term and bore interest at various LIBOR spreads, which spreads
increased with the passing of each four-month period. The Company borrowed the
entire amount available under the bridge loan in November 1997 and repaid the
amount in full in December 1997, and the facility was
28
<PAGE>
terminated at that time. During 1996 the Company entered into a $75,000 bridge
loan with the same group of commercial banks under similar terms. The Company
borrowed the entire amount available under the bridge loan in June 1996, and
repaid the amount in full in September 1996, and the facility was terminated at
that time.
NOTE 8 PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following summary of unaudited pro forma combined financial information of
the Company is presented as if all acquisitions, common stock issuances and
notes payable issuances that transpired during 1997 and 1996 had occurred at the
beginning of each period presented. The unaudited combined financial information
is not necessarily indicative of what actual results of operations of the
company would have been assuming such transactions had been completed at the
beginning of each period, nor does it purport to represent the results of
operations for future periods.
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996
- ---------------------------------------------------------------
<S><C>
Pro forma total revenues $184,851 $172,311
Pro forma net income $ 62,280 $ 56,108
Pro forma basic income per share $ 2.25 $ 2.03
Pro forma diluted income per share $ 2.24 $ 2.02
</TABLE>
NOTE 9 FINANCIAL INSTRUMENTS
The Company's carrying amounts and fair value of its financial instruments were
as follows:
<TABLE>
<CAPTION>
As of December 31, 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
Carrying value Fair value Carrying value Fair value
- ----------------------------------------------------------------------------------------------------------------------
<S><C>
Cash and cash equivalents $ 1,172 $ 1,172 $ 1,323 $ 1,323
Mortgages receivable 24,541 24,541 -- --
Line of credit borrowings 31,843 31,843 52,730 52,730
Mortgage notes payable 42,766 49,766 45,724 49,963
Notes payable 400,000 408,859 100,000 99,587
Interest rate risk management agreements -- -- -- (1,118)
</TABLE>
The Company, in determining the fair values set forth above, used the
following methods and assumptions:
Mortgages Receivable
During 1997, the Company began offering construction loans to franchisees of
Franchise to fund the development of franchised self-storage facilities. The
loans are collateralized by the property. A market rate of interest is used,
based on a spread over the 30-day LIBOR rate or the prime rate and adjusted
monthly, and therefore fair value approximates carrying value. The term of the
loan is four years, which approximates the construction and lease-up period. At
December 31, 1997, the Company had $24,541 in mortgages receivable outstanding,
with interest rates ranging from 8.5% to 9.0% with a weighted average rate of
8.96%, and is committed to lend an additional $39,934.
Mortgage and Notes Payable and Line of Credit Borrowings
The Company's line of credit borrowings bear interest at variable rates and
therefore cost approximates fair value. The fair value of the Mortgage notes
payable, and the Notes payable were estimated using discounted cash flow
analysis, based on the Company's current incremental borrowing rate at December
31, 1997 and 1996, for similar types of borrowing arrangements.
Interest Rate Risk Management Agreement
During 1997, the Company entered into an interest rate swap agreement in order
to reduce the interest rate risk associated with the issuance of the $100,000
Notes due 2007 and the $100,000 Notes due 2027 (see Note 5). The Company
terminated the agreement on the date the Notes were issued and deferred a $(346)
loss. This loss, net of accumulated amortization, is included in other assets at
December 31, 1997 and is being amortized into interest expense over the term of
the Notes.
During 1996, the Company entered into a fixed pay forward starting swap
agreement in order to reduce the interest rate risk associated with the issuance
of the $100,000 Notes due 2017 (see Note 5). The Company terminated the
agreement on the date the Notes were issued and deferred a $(209) loss. This
loss, net of accumulated amortization, is included in other assets at December
31, 1997 and 1996 and is being amortized into interest expense over the term of
the Notes.
During 1996, the Company entered into an interest rate swap agreement in
order to reduce the interest rate risk associated with the issuance of the
$100,000 Notes due 2003 (see Note 5). The Company terminated the agreement on
the date the Notes were issued and deferred a $(2,481) loss. This loss, net of
accumulated amortization, is included in other assets at December 31, 1997 and
1996 and is being amortized into interest expense over the term of the Notes.
During 1995, the Company had entered into an interest rate swap agreement
with the objective of reducing its exposure to future interest rate
fluctuations. The agreement involved the exchange of a variable rate for a fixed
rate interest payment obligation. The agreement had a notional principal amount
of $100,000, an effective date of March 1, 1996, and a maturity date of March 1,
2003. On March 8, 1996, the Company closed the interest rate
29
<PAGE>
swap agreement and received proceeds of approximately $50. The gain from this
contract was deferred and is being amortized over the life of the Notes (see
Note 5). The fair value of the interest rate management agreements as of
December 31, 1996, repre sents the estimated amount the Company would have paid
to terminate the agreements on those dates.
NOTE 10 COMMITMENTS AND CONTINGENCIES
Lease Agreements
The Company has various lease agreements for office space. Total future minimum
rental payments on the office leases are $862 in year one, $747 in year two,
$594 in years three and four, and $163 in year five.
Construction Financing
The Company is committed to lend an additional $39,934 in construction financing
to franchisees of Franchise as described in Note 9. The Company is also a
limited guarantor on the financing of eight development projects in which
Franchise has either a partnership interest or an option to purchase the
facility at various times after completion. Under the terms of the guarantee,
the Company has the option, upon notice by the financial institution of an event
which would require payment by the Company under the guarantee, of (a)
purchasing the note and all related loan documents without recourse or (b)
payment of the guarantee. At December 31, 1997, the Company was guarantor on
$22,425 of these financing arrangements, of which $15,763 was outstanding.
Redemption of Partnership Units
At December 31, 1997, there were 2,828,635 Partnership Units
outstanding. Certain Partnership Units are redeemable for an amount
equal to their fair market value ($3.3 million, based upon a price per Unit of
$39.9375 at December 31, 1997) payable by the Company in cash or by a promissory
note payable in quarterly installments over two years with interest at the prime
rate. Units held by other Limited Partners are redeemable, at the option of such
Limited Partners, beginning on the first anniversary of their issue, for amounts
equal to the then fair market value of their Units ($72.8 million redeemable at
December 31, 1997, based upon a price per Unit of $39.9375 at December 31, 1997)
payable by the Company in cash or, at the option of the Company, in shares of
the Company's common stock at the exchange ratio of one share for each Unit.
NOTE 11 DISTRIBUTIONS
The dollar amount and percentage allocation between return of capital and
ordinary income of the Company's dividends were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------
<S><C>
Dividends $2.40 $2.25 $2.04
Ordinary income 92% 96% 94%
Return of capital 8% 4% 6%
</TABLE>
NOTE 12 CAPITAL STOCK
The Company applies APB25 and related interpretations in accounting for its
stock-based compensation plan (the "Plan"). In accordance with SFAS123
"Accounting for Stock-Based Compensation", the Company elected to continue to
apply the provisions of APB25. However, pro forma disclosures as if the Company
adopted the cost recognition provisions of SFAS123 in 1995 are required and are
presented below along with a summary of the Plan and awards.
The shareholders of the Company have approved and the Company has adopted
the Storage USA, Inc. 1993 Omnibus Stock Incentive Plan. The Company has granted
options to certain directors, officers and key employees to purchase shares of
the Company's common stock at a price not less than the fair market value at the
date of grant. There are 2,000,000 shares available to be issued under the Plan.
Generally, the optionee has up to ten years from the date of the grant to
exercise the options. Plan activity is as follows:
<TABLE>
<CAPTION>
Number of Exercise Average
options price range exercise price
- ------------------------------------------------------------------------------------------------------------
<S> <C>
Options outstanding December 31, 1994 493,402 $ 21.75-$25.625 $23.6905
Granted 175,834 $ 27.50-$ 31.00 $30.9088
Exercised (4,500) $ 21.75-$ 24.75 $22.7500
Cancelled (3,000) $ 24.75 $24.7500
- ------------------------------------------------------------------------------------------------------------
Options outstanding December 31, 1995 661,736 $ 21.75-$ 31.00 $25.6101
Exercisable at end of year 466,861 $ 21.75-$ 31.00 $24.0832
Granted 339,754 $ 31.25-$37.625 $34.8608
Exercised (2,600) $ 24.75 $24.7500
Cancelled (45,100) $ 31.00-$ 36.75 $31.0127
- ------------------------------------------------------------------------------------------------------------
Options outstanding December 31, 1996 953,790 $ 21.75-$37.625 $28.6522
Exercisable at end of year 693,963 $ 21.75-$37.625 $25.9876
Granted 746,200 $35.625-$40.375 $38.5151
Exercised (172,351) $ 21.75-$ 31.00 $24.7816
Cancelled (129,325) $ 31.00-$39.125 $35.6737
- ------------------------------------------------------------------------------------------------------------
Options outstanding December 31, 1997 1,398,314 $ 21.75-$40.375 $33.7320
=============================================================================================================
Exercisable at end of year 548,628 $ 21.75-$ 38.25 $26.6866
=============================================================================================================
</TABLE>
30
<PAGE>
The following table provides additional information about the options
outstanding and exercisable at December 31, 1997:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
- ---------------------------------------------------------------------------------------------------------------
Outstanding Weighted average Weighted as of Weighted
Range of as of remaining average Dec. 31, average
exercise prices Dec. 31, 1997 contractual life exercise price 1997 exercise price
- ---------------------------------------------------------------------------------------------------------------
<S><C>
$20.1876 - $24.2250 142,000 6.3 $21.7500 142,000 $21.7500
$24.2251 - $28.2625 188,910 6.9 $24.8319 188,910 $24.8319
$28.2626 - $32.3000 192,000 8.0 $31.1302 192,000 $31.1302
$32.3001 - $36.3375 36,279 8.6 $33.8899 19,168 $33.2858
$36.3376 - $40.3750 839,125 9.6 $38.3518 6,550 $37.6331
- ---------------------------------------------------------------------------------------------------------------
1,398,314 8.7 $33.7320 548,628 $26.6866
===============================================================================================================
</TABLE>
The Company has utilized a Black-Scholes option-pricing model with the
following assumptions in order to estimate the fair value of its stock options:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------
<S><C>
Risk free interest rates 5.74% 6.34% 5.64%
Estimated dividend yields 6.20% 6.50% 7.50%
Volatility factors of the expected
market price of the Company's
Common Shares 16.8% 25.8% 15.9%
Expected life of the options (years) 8.7 7.2 6.9
Weighted average fair value $3.98 $5.66 $1.91
</TABLE>
The following pro forma disclosures were computed assuming the fair value of
the options is amortized to compensation expense over the vesting period of the
options:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------
<S><C>
Pro forma compensation
expense(1) $ 901 $ 806 $ 76
Pro forma net income(1) $61,515 $42,720 $29,077
Pro forma basic net income
per share(1) $ 2.30 $ 2.05 $ 1.86
Pro forma diluted net
income per share(1) $ 2.28 $ 2.03 $ 1.85
</TABLE>
(1) Due to the inclusion of only 1995 through 1997 option grants, the effect of
applying SFAS 123 in 1995 through 1997 may not be representative of the Pro
forma impact in future years.
Employee Stock Purchase and Loan Plan
As of December 31, 1997, the Company has issued 388,000 shares of its common
stock under the 1995 Employee Stock Purchase and Loan Plan. Pursuant to the
terms of the plan, the Company and certain officers entered into stock purchase
agreements whereby the officers purchased common stock at the then current
market price. The Company provides 100% financing for the purchase of the shares
with interest rates ranging from 6.2% to 7.0% per anum payable quarterly. The
underlying notes are collateralized by the shares and mature between 2002 and
2004.
Dividend Reinvestment and Stock Purchase Plan
In 1995, the Company adopted the Dividend Reinvestment and Stock Purchase Plan
(the "Plan"). Under the Plan, the Company offers holders of its common stock the
opportunity to purchase, through reinvestment of dividends or by additional cash
payments, additional shares of its common stock. The shares of common stock for
participants may be purchased from the Company at the greater of the average
high and low sales price or the average closing sales price on the investment
date or in the open market at 100% of the average price of all shares purchased
for the Plan. During 1997 and 1996, 1,257 and 2,022 shares, respectively, were
issued under the Plan.
Common Stock
On March 11, 1997, the Company issued 1,400,000 shares of common stock for an
aggregate purchase price of $50,739. On March 17, 1997, the underwriters
exercised their option to purchase 210 thousand additional shares of common
stock for an aggregate purchase price of $7,610. On March 28, 1997, Security
Capital U.S. Realty ("USRealty"), an affiliate of Security Capital Group,
purchased 851 thousand shares of common stock directly from the Company through
the exercise of its participation right under the Strategic Alliance Agreement
for net proceeds of $32,019. USRealty owns 38.3% of the Company as of December
31, 1997.
The proceeds from the issuances are contributed to the Partnership in
exchange for additional Units. The Partnership used the net proceeds to repay
debt incurred under its revolving lines of credit to finance the acquisitions of
self-storage facilities and for working capital.
On March 1, 1996, the Company entered into a Stock Purchase Agreement with
USRealty. Under the Stock Purchase Agreement, subject to certain terms and
conditions, USRealty invested a total of $220,000 in purchasing 7,028,754 shares
of the Company's common stock, placed two of its nominees on the Company's Board
of Directors, and executed a Strategic Alliance Agreement and a Registration
Rights Agreement with the Company. The proceeds received from USRealty were used
to repay borrowings under the
31
<PAGE>
Company's lines of credit, to acquire self-storage facilities and for working
capital.
NOTE 13 POST EMPLOYMENT BENEFIT PLAN
The Company contributes to a 401(k) savings plan (a voluntary defined
contribution plan) for the benefit of employees meeting certain eligibility
requirements and electing participation in the plan. Each year the Company is
obligated to make a matching contribution on the employee's behalf equal to 50%
of the participant's contribution to the plan, up to 2% of the participant's
compensation. Company profit sharing contributions to the plan are determined
annually by the Company. Company contributions totaled $461, $382, and $223
during 1997, 1996 and 1995, respectively.
NOTE 14 RECENT ACCOUNTING DEVELOPMENTS
In September 1997, SFAS No. 130, "Reporting Comprehensive Income" was issued and
is effective for fiscal years beginning after December 15, 1997. SFAS No. 130
establishes standards for the reporting and display of comprehensive income and
its components (revenues, expenses, gains, losses) in a full set of general
purpose financial statements. SFAS No. 130 requires the disclosure of an amount
that represents total comprehensive income and the components of comprehensive
income in a financial statement. The adoption of SFAS No. 130 is not expected to
have a material impact on the financial statements of the Company.
In September 1997, SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" was issued and is effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 establishes standards for
determining an entity's operating segments and the type and level of financial
information to be disclosed in both annual and interim financial statements. It
also establishes standards for related disclosures about products and services,
geographic areas and major customers. The adoption of SFAS No. 131 is not
expected to have a material impact on the financial statements of the Company.
NOTE 15 LEGAL PROCEEDINGS
The Company is the subject of a purported national class action filed on
September 25, 1997, in the Superior Court of the District Of Columbia, Nelda
Perkins v. Storage USA, Inc., Civil Action No. 97-CA97426, seeking recovery of
certain late fees paid by Company tenants since September 1993, treble damages,
unspecified punitive damages and an injunction against further assessment of
similar fees. The Company has filed its initial response in the case, believes
it has defenses to the claims and intends to defend the suit vigorously. While
the ultimate resolution of this case cannot be currently determined, management
believes that the aggregate liability or loss, if any, resulting from this claim
will not have a material adverse effect on its financial position. However, if
during any period the potential contingency should become probable, the results
of operations in that period could be materially affected.
NOTE 16 SUBSEQUENT EVENTS
Property Acquisitions
Subsequent to December 31, 1997, the Company has completed the acquisition of 16
self-storage facilities for approximately $52,824. These acquisitions were
financed through operating cash flows and borrowings under the $190,000 line of
credit.
NOTE 17 QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of quarterly results of operations for 1997 and 1996:
<TABLE>
<CAPTION>
1997
- ---------------------------------------------------------------------------------------------------
First Second Third Fourth
quarter quarter quarter quarter
- ---------------------------------------------------------------------------------------------------
<S><C>
Revenue $33,917 $38,651 $43,052 $44,950
Net income $12,985 $17,895 $15,894 $15,642
Basic net income per share $ 0.52 $ 0.66 $ 0.58 $ 0.57
Diluted net income per share $ 0.51 $ 0.65 $ 0.58 $ 0.56
</TABLE>
<TABLE>
<CAPTION>
1996
- ------------------------------------------------------------------------------------------------------
First Second Third Fourth
quarter quarter quarter quarter
- ------------------------------------------------------------------------------------------------------
<S><C>
Revenue $21,333 $24,356 $29,435 $32,185
Net income $ 8,392 $10,145 $11,650 $13,339
Basic net income per share $ 0.47 $ 0.52 $ 0.55 $ 0.54
Diluted net income per share $ 0.47 $ 0.51 $ 0.54 $ 0.54
</TABLE>
32
<PAGE>
Storage USA, Inc.
Report of Independent Accountants
To the Board of Directors and
Shareholders of Storage USA, Inc.
We have audited the accompanying consolidated balance sheets of Storage USA,
Inc. (the "Company") as of December 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the management of the Company. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company as
of December 31, 1997 and 1996, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Baltimore, Maryland
January 30, 1998, except for Note 16,
as to which the date is March 18, 1998.
33
<PAGE>
<TABLE>
Storage USA, Inc., Facilities
Schedule III
Real Estate and Accumulated Depreciation
as of December 31, 1997
<CAPTION>
Initial Cost to REIT Cost of Gross Amount at Close of Period
--------------------------- Improvements ---------------------------------------
Building & Subsequent Building &
State Property Name Encumbrances Land Fixtures to Acquisition Land Fixtures Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
AL Vestavia 652,309 1,771,282 75,720 652,309 1,847,002 2,499,311
AL Birmingham/Hwy 28 348,919 953,148 36,862 352,163 986,766 1,338,929
AZ 24th Street 500,232 1,362,657 32,165 500,232 1,394,822 1,895,054
AZ Oracle 587,844 1,595,864 51,070 587,844 1,646,934 2,234,778
AZ 22nd Street 529,702 1,439,965 40,011 529,702 1,479,976 2,009,678
AZ East Phoenix 370,586 1,021,566 52,308 370,586 1,073,874 1,444,460
AZ Tempe 878,690 2,389,598 60,096 879,017 2,449,367 3,328,384
AZ Cave Creek 824,369 2,244,177 52,174 824,369 2,296,351 3,120,720
AZ Alma School 785,504 2,162,032 18,843 788,748 2,177,631 2,966,379
AZ Metro-21st/Peoria-Phoenix 599,712 1,638,042 20,027 602,956 1,654,825 2,257,781
AZ 7th St/Indian Sch-Phoenix 518,977 1,418,677 34,404 522,221 1,449,837 1,972,058
AZ Phoenix/32nd Street 1,352,332 3,670,885 25,740 1,355,576 3,693,381 5,048,957
AZ Mesa/Country Club 554,688 1,503,241 21,296 557,932 1,521,293 2,079,225
AZ Mesa/East Main St 1,466,674 913,783 2,479,293 37,074 917,027 2,513,123 3,430,150
AZ Phoenix/Bell Road 1,312,139 3,547,636 64,832 1,319,532 3,605,075 4,924,607
AZ Tucson/S Santa Clara Ave 542,275 1,486,171 - 542,275 1,486,171 2,028,446
AZ Phoenix/N 43rd Avenue 1,307,809 3,541,123 - 1,307,809 3,541,123 4,848,932
AZ Phoenix/N 25th Avenue 537,482 1,457,678 - 537,482 1,457,678 1,995,160
AZ Phoenix/2331 W Ind Sch 537,759 1,458,428 - 537,759 1,458,428 1,996,187
AZ Mesa/N Power Rd 454,601 1,231,582 - 454,601 1,231,582 1,686,183
AZ Mesa/3026 S Ctry Club 525,840 1,429,081 - 525,840 1,429,081 1,954,921
CA Miramar Self 387,430 1,059,395 55,718 387,430 1,115,113 1,502,543
CA Miramar Business 1,225,124 3,344,676 194,094 1,225,124 3,538,770 4,763,894
CA Marina Del Rey 1,954,097 5,293,255 112,610 1,954,097 5,405,865 7,359,962
CA Covina 1,234,592 3,356,433 193,085 1,234,592 3,549,518 4,784,110
CA Norwalk 1,529,221 4,152,897 130,581 1,529,221 4,283,478 5,812,699
CA Campbell 989,715 2,684,079 273,137 1,041,860 2,905,071 3,946,931
CA Monterey I & II 1,556,242 4,223,039 291,149 1,613,922 4,456,508 6,070,430
CA Palo Alto 601,092 1,634,967 241,993 651,280 1,826,772 2,478,052
CA San Jose 1,213,742 3,289,781 288,034 1,266,988 3,524,569 4,791,557
CA Santa Cruz 1,036,838 2,812,668 263,529 1,092,718 3,020,317 4,113,035
CA Scotts Valley 601,093 1,634,485 251,095 651,281 1,835,392 2,486,673
CA Santa Clara 1,362,331 3,738,431 106,507 1,362,331 3,844,938 5,207,269
CA Watsonville 430,931 1,173,809 224,592 480,039 1,349,293 1,829,332
CA Panorama City 961,128 2,608,919 66,534 961,128 2,675,453 3,636,581
CA Westminster 975,304 2,641,287 88,252 975,304 2,729,539 3,704,843
CA Point Loma 2,135,347 5,777,511 237,891 2,139,342 6,011,407 8,150,749
CA Rialto 695,327 1,921,602 119,469 695,327 2,041,071 2,736,398
CA Yucaipa 411,580 1,145,267 3,311 411,580 1,148,578 1,560,158
CA Fallbrook 418,763 1,154,513 13,687 418,763 1,168,200 1,586,963
CA Hemet 455,585 1,252,504 5,386 455,585 1,257,890 1,713,475
CA Victorville 491,597 1,347,613 1,796 491,597 1,349,409 1,841,006
CA San Bernardino/Baseline 1,220,837 3,325,258 16,684 1,220,837 3,341,942 4,562,779
CA Colton 514,276 1,425,550 34,042 514,276 1,459,592 1,973,868
CA San Marcos 318,260 879,411 48,125 318,260 927,536 1,245,796
CA Capitola 827,352 2,283,337 27,250 827,352 2,310,587 3,137,939
CA Oceanside 1,236,627 3,383,435 32,299 1,236,627 3,415,734 4,652,361
CA San Bernardino/Waterman 708,661 1,941,602 61,336 708,988 2,002,611 2,711,599
CA Santee 879,599 2,382,970 109,903 879,599 2,492,873 3,372,472
CA Santa Ana 1,273,489 3,456,542 27,811 1,273,816 3,484,026 4,757,842
CA Garden Grove 1,137,544 3,087,956 25,284 1,137,871 3,112,913 4,250,784
CA City of Industry 899,709 2,453,012 71,417 900,036 2,524,102 3,424,138
CA Chatsworth 1,740,975 4,744,309 75,095 1,738,243 4,822,136 6,560,379
CA Palm Springs/Tamarisk 816,416 2,229,985 99,025 816,743 2,328,683 3,145,426
CA Moreno Valley 413,759 1,142,629 112,557 414,614 1,254,331 1,668,945
CA San Bern/23rd St 655,883 1,803,082 84,633 655,883 1,887,715 2,543,598
CA San Bern/Mill Ave 368,526 1,023,905 72,864 370,043 1,095,252 1,465,295
CA Highlands 626,794 1,718,949 34,079 627,594 1,752,228 2,379,822
CA Redlands 673,439 1,834,612 251,957 731,365 2,028,643 2,760,008
CA Palm Springs/Gene Autry 784,589 2,129,022 31,505 784,589 2,160,527 2,945,116
CA Thousand Palms 652,410 1,831,765 81,700 655,654 1,910,221 2,565,875
CA Salinas 622,542 1,731,104 34,659 625,785 1,762,520 2,388,305
CA Whittier 919,755 2,516,477 44,296 922,999 2,557,529 3,480,528
CA Florin/Freeport-Sacrament 824,241 2,262,310 56,014 827,485 2,315,080 3,142,565
CA Sunrise/Sacramento 819,025 2,231,500 56,064 822,269 2,284,320 3,106,589
CA Santa Rosa 1,351,168 3,669,084 39,081 1,354,412 3,704,921 5,059,333
CA Huntington Beach 838,648 2,309,309 95,760 841,892 2,401,825 3,243,717
CA La Puente/Valley Blvd 992,211 2,710,041 39,130 995,455 2,745,927 3,741,382
CA Pacheco/First Ave North 1,198,654 3,257,766 48,949 1,201,898 3,303,471 4,505,369
CA Huntington Bch II/McFadden 1,050,495 2,846,043 26,941 1,053,739 2,869,740 3,923,479
CA Hawaiian Gardens/Norwalk 1,956,411 5,353,015 45,419 1,959,655 5,395,190 7,354,845
CA Sacramento/Auburn Blvd 666,995 1,808,847 132,389 664,859 1,943,372 2,608,231
CA Vacaville/Bella Vista 680,221 1,873,594 - 680,221 1,873,594 2,553,815
CA Sacramento/Perry 452,480 1,225,139 45,445 457,588 1,265,476 1,723,064
CA Cypress/Lincoln Avenue 795,173 2,178,391 - 795,173 2,178,391 2,973,564
CA Hollywood/N Vine St 1,736,825 4,735,794 - 1,736,825 4,735,794 6,472,619
CA Los Angeles/Fountain Ave 1,817,049 835,269 2,318,852 - 835,269 2,318,852 3,154,121
CA Long Beach/W Wardlow Rd 988,344 2,714,905 - 988,344 2,714,905 3,703,249
CA Riverside/Arlington Ave 596,109 1,676,348 - 596,109 1,676,348 2,272,457
CA Orange/S Flower St 1,563,079 4,245,104 - 1,563,079 4,245,104 5,808,183
CA Huntington Bch/Warner Ave 3,308,574 8,976,395 - 3,308,574 8,976,395 12,284,969
CA Anaheim/W Penhall Way 977,584 2,664,764 - 977,584 2,664,764 3,642,348
CA Santa Ana/W Fifth St 760,131 2,109,283 - 760,131 2,109,283 2,869,414
CA Long Beach/E Carson St 1,485,186 4,033,235 - 1,485,186 4,033,235 5,518,421
CA Long Beach/W Artesia Blvd 2,025,400 5,552,032 - 2,025,400 5,552,032 7,577,432
CA El Segundo/El Segundo Blv 2,065,840 5,598,384 - 2,065,840 5,598,384 7,664,224
CA Gardena/E Alondra Blvd 1,080,093 2,944,755 - 1,080,093 2,944,755 4,024,848
CA Pico Rivera/E Slauson Ave 1,823,075 4,954,864 - 1,823,075 4,954,864 6,777,939
CA Whittier/Comstock 1,230,548 3,346,862 - 1,230,548 3,346,862 4,577,410
CA Baldwin Park/Garvey Ave 568,380 1,552,405 - 568,380 1,552,405 2,120,785
CA Glendora/E Arrow Hwy 873,562 2,378,316 - 873,562 2,378,316 3,251,878
CA Pomona/Ridgeway 810,109 2,242,407 - 810,109 2,242,407 3,052,516
CA Riverside/Fairgrounds St 675,019 1,867,609 - 675,019 1,867,609 2,542,628
CA Cathedral City/E Ramon Rd 1,485,254 4,047,848 - 1,485,254 4,047,848 5,533,102
CA Palm Springs/Radio Road 1,011,684 2,765,751 - 1,011,684 2,765,751 3,777,435
CA Campbell/187 E Sunnyoaks 781,574 1,668,337 - 781,574 1,668,337 2,449,911
CA Roseville/6th Street 793,202 2,153,320 - 793,202 2,153,320 2,946,522
CA Roseville/Junction Blvd 918,175 2,484,109 - 918,175 2,484,109 3,402,284
CA Spring Valley/Jamacha Rd 823,892 2,232,496 - 823,892 2,232,496 3,056,388
CO Broomfield/W 120th Ave 690,949 1,899,169 - 690,949 1,899,169 2,590,118
CO Lakewood/W Mississippi 1,348,480 3,658,455 - 1,348,480 3,658,455 5,006,935
CT Wethersfield 472,831 1,294,408 912,570 472,831 2,206,978 2,679,809
CT Enfield 499,855 1,376,651 124,921 513,775 1,487,652 2,001,427
CT East Hartford 992,547 2,700,212 95,500 992,547 2,795,712 3,788,259
CT Waterbury 746,487 2,036,915 28,877 749,731 2,062,548 2,812,279
CT Rocky Hill 1,327,857 3,608,978 35,553 1,331,101 3,641,287 4,972,388
CT Farmington 1,272,203 3,454,995 59,595 1,275,447 3,511,346 4,786,793
CT Stamford/Commerce Rd 3,159,903 8,547,884 - 3,159,903 8,547,884 11,707,787
DC U Street 1,388,564 3,769,506 82,603 1,388,564 3,852,109 5,240,673
DE Wilmington 610,689 2,512,985 81,676 610,689 2,594,661 3,205,350
FL Kendall 1,838,903 3,870,318 38,232 1,838,903 3,908,550 5,747,453
FL Ives Dairy 1,061,776 4,320,377 53,469 1,061,776 4,373,846 5,435,622
FL Longwood 862,849 2,387,142 32,016 862,849 2,419,158 3,282,007
FL Sarasota 1,281,966 2,007,843 1,899,370 2,007,894 3,181,285 5,189,179
FL WPB Southern 851,237 226,524 922,193 2,963,268 1,016,446 3,095,539 4,111,985
FL WPB II 572,284 2,365,372 40,080 572,284 2,405,452 2,977,736
FL Port Richey 605,850 1,668,041 70,143 605,850 1,738,184 2,344,034
FL Ft. Myers 489,609 1,347,207 781,266 645,219 1,972,863 2,618,082
FL North Lauderdale 1,050,449 2,867,443 753,551 1,282,769 3,388,674 4,671,443
FL Naples 636,051 1,735,211 56,077 636,051 1,791,288 2,427,339
FL Hallandale 1,696,519 4,625,578 29,327 1,696,519 4,654,905 6,351,424
FL Davie 2,005,938 5,452,384 88,228 2,005,938 5,540,612 7,546,550
FL Tampa/Adamo 837,180 2,291,714 32,645 837,180 2,324,359 3,161,539
FL SR 84 (Southwest) 1,903,782 5,187,373 96,578 1,903,782 5,283,951 7,187,733
FL Quail Roost 2,039,267 1,663,641 4,533,384 26,310 1,663,641 4,559,694 6,223,335
FL Tamiami 1,962,917 5,371,139 16,290 1,962,917 5,387,429 7,350,346
FL Highway 441 (2nd Avenue) 1,734,958 4,760,420 31,657 1,734,958 4,792,077 6,527,035
FL Miami Sunset 2,205,018 6,028,210 21,591 2,205,018 6,049,801 8,254,819
FL Doral (Archway) 1,633,500 4,464,103 57,215 1,633,500 4,521,318 6,154,818
FL Boca Raton 1,505,564 4,123,885 26,910 1,508,808 4,147,551 5,656,359
FL Ft Lauderdale 1,063,136 2,949,236 63,636 1,066,380 3,009,628 4,076,008
FL Coral Way 2,983,786 1,574,578 4,314,468 27,280 1,577,822 4,338,504 5,916,326
FL Miller Rd. 1,409,474 3,898,643 21,257 1,412,212 3,917,162 5,329,374
FL Harborview/Port Charlotte 883,344 2,400,333 53,027 885,953 2,450,751 3,336,704
FL Miami Gardens/441 540,649 1,469,557 38,151 543,893 1,504,464 2,048,357
FL Miramar/State Rd 7 1,797,370 4,892,278 390,499 1,800,614 5,279,533 7,080,147
FL Delray Bch/W Atlantic Blvd 388,538 1,059,895 21,096 391,782 1,077,747 1,469,529
FL West Palm/Okeechobee Blvd 2,600,000 1,134,363 2,396,690 - 1,134,363 2,396,690 3,531,053
FL Sarasota/N Washington Blvd 1,038,538 2,822,939 - 1,038,538 2,822,939 3,861,477
GA South Cobb 161,509 1,349,816 136,204 161,509 1,486,020 1,647,529
GA Lilburn 634,879 1,724,697 43,782 634,879 1,768,479 2,403,358
GA Eastpoint 807,085 2,194,489 748,124 937,618 2,812,080 3,749,698
GA Acworth 333,504 917,825 987,096 520,032 1,718,393 2,238,425
GA Western Hills 682,094 1,855,712 277,313 846,462 1,968,657 2,815,119
GA Stone Mountain 1,053,620 2,908,080 54,318 1,056,864 2,959,154 4,016,018
IL Prospect Heights/E Piper 893,807 2,425,436 - 893,807 2,425,436 3,319,243
IN Marion/W 2nd St 230,497 660,932 - 230,497 660,932 891,429
IN Indianapolis/N Illinois 365,621 993,582 - 365,621 993,582 1,359,203
IN Indianapolis/W 10th St 598,465 1,627,324 - 598,465 1,627,324 2,225,789
IN Indianapolis/Hawthorn Pk 1,257,359 3,409,578 - 1,257,359 3,409,578 4,666,937
IN Indianapolis/E 56th St 1,053,343 2,856,687 - 1,053,343 2,856,687 3,910,030
IN Indianapolis/E 42nd St 665,547 1,809,692 - 665,547 1,809,692 2,475,239
IN Indianapolis/E 86th St 397,221 1,087,020 - 397,221 1,087,020 1,484,241
IN Indianapolis/Beachway Dr 526,117 1,432,517 - 526,117 1,432,517 1,958,634
IN Indianapolis/Crawfordsville 267,217 732,526 - 267,217 732,526 999,743
IN Indianapolis/Fulton Dr 323,210 881,916 - 323,210 881,916 1,205,126
IN Indianapolis/N Meridian - 11,011 - - 11,011 11,011
IN Indianapolis/Fry Rd 617,315 1,694,127 - 617,315 1,694,127 2,311,442
IN Greenwood/E Stop 11 Rd 794,443 2,158,189 - 794,443 2,158,189 2,952,632
IN Columbus/W 15th St 59,597 170,384 - 59,597 170,384 229,981
IN Columbus/Eastwood Dr 83,159 239,273 - 83,159 239,273 322,432
IN Clarksville/N Hallmark 53,776 157,730 - 53,776 157,730 211,506
IN Jefferson/E Highway 62 145,805 404,549 - 145,805 404,549 550,354
IN Jeffersonville/E 10th St 301,589 826,943 - 301,589 826,943 1,128,532
IN New Albany/Grant Line Rd 188,493 519,965 - 188,493 519,965 708,458
IN Jeffersonville/W 7th St 329,308 902,889 - 329,308 902,889 1,232,197
IN Clarksville/Woodstock Dr 286,620 785,272 - 286,620 785,272 1,071,892
IN New Albany/Progress Blvd 387,797 1,061,123 - 387,797 1,061,123 1,448,920
KS Shawnee 546,118 1,490,460 39,656 546,118 1,530,116 2,076,234
KS Olathe 429,808 1,176,442 55,116 429,808 1,231,558 1,661,366
KS Overland Park 561,549 1,530,969 40,101 561,549 1,571,070 2,132,619
KS State Avenue 448,025 1,224,381 100,024 448,025 1,324,405 1,772,430
KY Louisville/Bardstown 664,899 1,812,323 - 664,899 1,812,323 2,477,222
KY Louisville/Dixie Highway 649,638 1,790,623 - 649,638 1,790,623 2,440,261
KY Louisville/Oaklawn Avenue 209,005 574,740 - 209,005 574,740 783,745
KY Louisville/Preston Hwy 863,390 2,346,688 - 863,390 2,346,688 3,210,078
KY Valley Station/Val Sta Rd 623,828 1,697,482 - 623,828 1,697,482 2,321,310
KY Louisville/Adams St 752,032 2,049,063 - 752,032 2,049,063 2,801,095
MA Worcester 661,235 1,541,427 96,715 661,235 1,638,142 2,299,377
MA Haverhill 573,068 1,568,047 22,348 573,068 1,590,395 2,163,463
MA New Bedford 768,959 2,099,751 11,837 768,959 2,111,588 2,880,547
MA Whitman 544,178 1,487,628 71,729 544,178 1,559,357 2,103,535
MA Brockton 1,134,761 3,104,615 26,214 1,138,005 3,127,585 4,265,590
MA Northborough 822,364 2,279,586 18,890 825,608 2,295,232 3,120,840
MA Nashua/Tyngsboro 1,211,930 3,293,838 17,240 1,215,174 3,307,834 4,523,008
MA South Easton 909,912 2,465,382 47,548 913,156 2,509,686 3,422,842
MA North Attleboro 908,949 2,460,427 84,819 913,413 2,540,782 3,454,195
MA Fall River 773,781 2,097,333 105,443 777,025 2,199,532 2,976,557
MA Salisbury 771,078 2,096,159 43,243 774,322 2,136,158 2,910,480
MA Raynham/Broadway 128,851 352,739 - 128,851 352,739 481,590
MD Annapolis/Route 50 3,321,969 1,565,664 4,324,670 43,265 1,565,664 4,367,935 5,933,599
MD Silver Spring 2,776,490 4,455,110 44,721 2,776,490 4,499,831 7,276,321
MD Essex 1,015,773 2,396,462 39,690 1,015,773 2,436,152 3,451,925
MD Columbia 1,057,034 3,289,952 82,057 1,057,034 3,372,009 4,429,043
MD Rockville 1,376,588 3,765,848 34,564 1,376,588 3,800,412 5,177,000
MD Annapolis/Trout 1,635,928 4,430,887 53,944 1,635,928 4,484,831 6,120,759
MD Montgomery Village 1,287,176 3,537,609 41,792 1,287,176 3,579,401 4,866,577
MD Millersville 1,501,123 4,101,854 42,799 1,501,123 4,144,653 5,645,776
MD Waldorf 1,168,869 3,175,314 7,733 1,169,197 3,182,719 4,351,916
MD Rt 3/Millersville 546,011 1,493,533 51,212 549,255 1,541,501 2,090,756
MD Balto City/E Pleasant St 1,547,767 4,185,072 31,499 1,551,011 4,213,327 5,764,338
MD Wheaton/Georgia Avenue 2,524,985 6,826,813 - 2,524,985 6,826,813 9,351,798
MD SUSA Partnership L.P. 21,067,186 19,639,050 - 21,067,186 19,639,050 40,706,236
MI Lincoln Park 761,209 2,097,502 1,304,191 1,028,677 3,134,225 4,162,902
MI Tel-Dixie 595,495 1,646,723 38,217 595,495 1,684,940 2,280,435
MI Troy/Coolidge Highway 1,264,541 3,425,505 30,999 1,267,785 3,453,260 4,721,045
MI Grand Rapids/28th St SE 598,182 1,621,080 32,721 601,426 1,650,557 2,251,983
MI Grandville/Spartan Ind Dr 579,599 1,840,838 19,693 582,843 1,857,287 2,440,130
MI Linden/S Linden Rd 608,318 1,725,631 - 608,318 1,725,631 2,333,949
MI Farmington Hills/Gr Riv - 21,690 - - 21,690 21,690
MO Grandview 511,576 1,396,230 70,638 511,576 1,466,868 1,978,444
MO Raytown 427,056 1,171,397 100,265 427,056 1,271,662 1,698,718
NC Charlotte/Tryon St 1,003,418 2,731,345 37,619 1,006,662 2,765,720 3,772,382
NC Raleigh/Hillsborough St 753,296 2,051,496 32,811 756,540 2,081,063 2,837,603
NC Charlotte/Amity Rd 947,871 2,583,190 28,663 951,115 2,608,609 3,559,724
NC Fayetteville/MacArthur 597,765 1,689,315 - 597,765 1,689,315 2,287,080
NC Fayetteville/Rim Rd 514,208 1,418,712 - 514,208 1,418,712 1,932,920
NC Wilmington/Market St 622,720 1,704,743 - 622,720 1,704,743 2,327,463
NJ Pennsauken 914,938 2,484,553 82,323 914,938 2,566,876 3,481,814
NJ Lawnside 1,095,126 2,972,032 179,684 1,095,126 3,151,716 4,246,842
NJ Cherry Hill/Cuthbert 720,183 1,894,545 66,133 720,183 1,960,678 2,680,861
NJ Cherry Hill/Route 70 693,314 1,903,413 134,037 693,641 2,037,123 2,730,764
NJ Pomona 529,657 1,438,132 16,952 532,901 1,451,840 1,984,741
NJ Mays Landing 386,592 1,051,300 28,044 389,836 1,076,100 1,465,936
NJ Hackensack/S River St 7,549,153 3,646,649 9,863,617 179,391 3,651,778 10,037,879 13,689,657
NJ Secaucus/Paterson Plank 5,569,732 2,851,097 7,712,681 174,714 2,856,055 7,882,437 10,738,492
NJ Harrison/Harrison Ave 1,260,229 822,192 2,227,121 62,911 828,139 2,284,085 3,112,224
NJ Orange/Oakwood Ave 3,994,746 2,408,877 6,517,030 72,875 2,414,297 6,584,485 8,998,782
NJ Flanders/Bartley Flanders 645,486 1,749,362 48,224 651,715 1,791,357 2,443,072
NJ Mt Laurel/Ark Road 678,397 1,866,032 - 678,397 1,866,032 2,544,429
NJ Ho Ho Kus/Hollywood Ave 4,474,785 12,117,431 - 4,474,785 12,117,431 16,592,216
NJ Millville/S Wade Blvd 302,675 829,306 - 302,675 829,306 1,131,981
NJ Williamstown/Glassboro Rd 483,584 1,316,646 - 483,584 1,316,646 1,800,230
NM Lomas 251,018 691,453 44,764 251,018 736,217 987,235
NM San Mateo 524,982 1,436,128 84,289 524,982 1,520,417 2,045,399
NM Montgomery 606,860 1,651,611 54,813 606,860 1,706,424 2,313,284
NM Legion - 1,873,666 54,055 - 1,927,721 1,927,721
NM Ellison 642,304 1,741,230 (4,430) 620,366 1,758,738 2,379,104
NM Hotel Circle 277,101 766,547 864,690 255,163 1,653,175 1,908,338
NM Eubank 577,099 1,568,266 192,415 577,099 1,760,681 2,337,780
NM Coors 494,400 1,347,792 75,863 494,400 1,423,655 1,918,055
NM Osuna 696,685 1,891,849 104,862 696,685 1,996,711 2,693,396
NM East Central 292,031 801,475 98,345 292,031 899,820 1,191,851
NV Rainbow 879,928 2,385,104 110,339 892,753 2,482,618 3,375,371
NV Oakey 663,607 1,825,505 39,187 663,607 1,864,692 2,528,299
NV Tropicana 803,070 2,179,440 168,681 815,085 2,336,106 3,151,191
NV Sunset 934,169 2,533,803 181,919 947,534 2,702,357 3,649,891
NV Sahara 1,217,565 3,373,622 30,986 1,217,565 3,404,608 4,622,173
NV Charleston 557,678 1,520,140 23,737 558,006 1,543,549 2,101,555
NV Las Vegas-Sahara/Pioneer 1,040,367 2,842,388 23,322 1,043,611 2,862,466 3,906,077
NV Las Vegas/S Nellis Blvd 619,239 1,749,528 - 619,239 1,749,528 2,368,767
NY Coram/Bald Hill 1,976,332 5,352,301 36,684 1,979,576 5,385,741 7,365,317
NY Mahopac/Rt 6 and Lupi Ct 1,299,571 3,530,956 - 1,299,571 3,530,956 4,830,527
NY Kingston/Sawkill Rd 677,909 1,845,654 - 677,909 1,845,654 2,523,563
NY New Paltz/So Putt Corners 547,793 1,498,124 - 547,793 1,498,124 2,045,917
NY Saugerties/Route 32 677,909 1,839,254 - 677,909 1,839,254 2,517,163
NY Amsterdam/Route 5 So 394,628 1,070,360 - 394,628 1,070,360 1,464,988
OH Akron/Chenoweth Rd 540,716 1,519,499 - 540,716 1,519,499 2,060,215
OH Streetsboro/Frost Rd 622,041 1,836,890 - 622,041 1,836,890 2,458,931
OH Franklin/Conover Dr 581,055 644,913 - 581,055 644,913 1,225,968
OH Kent/Cherry St 513,752 1,454,983 - 513,752 1,454,983 1,968,735
OH Amherst/Leavitt 392,212 1,131,603 - 392,212 1,131,603 1,523,815
OH East Lake/Lakeland Blvd 432,656 1,237,086 - 432,656 1,237,086 1,669,742
OH Mentor/Mentor Ave 1,051,222 2,910,600 - 1,051,222 2,910,600 3,961,822
OH Mentor/Heisley Road 337,560 986,802 - 337,560 986,802 1,324,362
OH Columbus/W Broad St 891,738 2,423,670 - 891,738 2,423,670 3,315,408
OH Columbus/S High St 785,018 2,127,507 - 785,018 2,127,507 2,912,525
OH Columbus/Innis Rd 1,694,130 4,585,478 - 1,694,130 4,585,478 6,279,608
OH Columbus/E Main St 665,547 1,808,554 - 665,547 1,808,554 2,474,101
OH Columbus/E Cooke Rd 891,461 2,415,298 - 891,461 2,415,298 3,306,759
OH Worthington/Reliance St 519,187 1,408,980 - 519,187 1,408,980 1,928,167
OH Delaware/State Rt 23 76,506 213,346 - 76,506 213,346 289,852
OH Trotwood/Salem Bend Dr 1,041,424 2,834,894 - 1,041,424 2,834,894 3,876,318
OH Worthington/Alta View Blvd 437,308 1,185,419 - 437,308 1,185,419 1,622,727
OH Columbus/W Dublin-Grand 1,639,358 801,749 2,170,758 - 801,749 2,170,758 2,972,507
OH Dublin/Old Avery Road 712,038 1,928,205 - 712,038 1,928,205 2,640,243
OH Hilliard/Parkway Lane 739,230 2,001,725 - 739,230 2,001,725 2,740,955
OK Sooner Road 453,185 1,252,031 82,632 453,185 1,334,663 1,787,848
OK 10th Street 261,208 743,356 1,182,545 621,413 1,565,696 2,187,109
OK Moore 281,912 776,815 114,948 281,912 891,763 1,173,675
OK NW Expressway 353,735 977,978 78,589 353,735 1,056,567 1,410,302
OK Midwest City 443,545 1,216,512 39,008 443,545 1,255,520 1,699,065
OK Meridian 252,963 722,040 344,995 244,143 1,075,855 1,319,998
OK Air Depot 347,690 965,923 95,052 347,690 1,060,975 1,408,665
OK Peoria 540,318 1,488,307 73,400 540,318 1,561,707 2,102,025
OK 11th & Mingo 757,054 2,071,799 114,072 757,054 2,185,871 2,942,925
OK Skelly 173,331 489,960 76,118 173,331 566,078 739,409
OK Lewis 642,511 1,760,304 15,404 626,512 1,791,707 2,418,219
OK Sheridan 531,978 1,509,718 80,412 531,978 1,590,130 2,122,108
OK OKC/Roxbury Blvd 241,220 671,753 20,348 244,464 688,857 933,321
OK OKC/33rd Street 267,059 741,710 87,052 270,303 825,518 1,095,821
OK OKC/South Western 721,181 1,958,872 - 721,181 1,958,872 2,680,053
OK Tulsa/So Garnett Road 966,052 497,746 - 966,052 497,746 1,463,798
OR Hillsboro/229th Ave 1,198,358 3,249,301 56,925 1,201,602 3,302,982 4,504,584
OR Beaverton/Murray Ave 1,086,999 2,948,220 33,074 1,090,243 2,978,050 4,068,293
OR Aloha/185th Ave 1,337,157 3,624,573 27,684 1,340,401 3,649,013 4,989,414
PA Philadelphia 1,574,064 2,838,049 32,995 1,574,064 2,871,044 4,445,108
PA King of Prussia 1,354,359 3,678,011 27,106 1,354,359 3,705,117 5,059,476
PA Warminster 891,048 2,446,648 63,603 891,048 2,510,251 3,401,299
PA Allentown 578,632 1,583,744 78,503 578,632 1,662,247 2,240,879
PA Bethlehem 843,324 2,317,298 63,885 843,324 2,381,183 3,224,507
PA Norristown 868,586 2,405,332 32,065 871,830 2,434,153 3,305,983
PA Malvern/E Lancaster 2,130,020 433,482 2,833,980 - 433,482 2,833,980 3,267,462
PA West Chester/Downington 567,546 1,613,461 - 567,546 1,613,461 2,181,007
TN Summer 172,093 2,663,644 44,445 172,093 2,708,089 2,880,182
TN Union 286,925 1,889,030 121,710 286,925 2,010,740 2,297,665
TN Memphis/Mt Moriah 692,669 1,598,722 1,329,703 1,034,883 2,586,211 3,621,094
TN Antioch/Nashville 822,125 2,239,684 128,388 822,125 2,368,072 3,190,197
TN Keyport (Gateway) 396,229 1,080,547 82,694 403,492 1,155,978 1,559,470
TN Chattanooga 484,457 1,360,998 226,090 680,344 1,391,201 2,071,545
TN Memphis/Ridgeway 638,757 1,141,414 1,171,120 638,849 2,312,442 2,951,291
TN Winchester 774,069 2,260,361 - 774,069 2,260,361 3,034,430
TN Nashville/Lebanon Pike 1,366,208 3,748,062 22,575 1,369,452 3,767,393 5,136,845
TN Nashville/Haywood 1,117,435 423,170 1,166,891 56,367 426,414 1,220,014 1,646,428
TN Nashville/Murfreesboro 835,088 344,720 950,811 65,361 347,963 1,012,929 1,360,892
TN Memphis/2939 Poplar 1,750,286 1,986,417 - 1,750,286 1,986,417 3,736,703
TN Nashville/Trousdale 1,440,860 3,901,994 31,410 1,440,705 3,933,559 5,374,264
TN Nashville/Murfreesboro 1,222,229 3,309,033 75,326 1,225,473 3,381,115 4,606,588
TN Nashville/Old Hickory Rd 1,271,786 3,444,402 107,349 1,275,030 3,548,507 4,823,537
TN Antioch/Bell Road 841,235 2,280,513 74,439 844,479 2,351,708 3,196,187
TN Franklin/Liberty Pike 844,335 2,287,937 74,057 847,579 2,358,750 3,206,329
TN Memphis/5675 Summer Ave 399,486 1,103,101 - 399,486 1,103,101 1,502,587
TN Memphis/4705 Winchester 425,797 1,171,967 - 425,797 1,171,967 1,597,764
TN Memphis/Madison Avenue 189,329 523,890 - 189,329 523,890 713,219
TN Memphis/Raleigh-LaGrange 282,744 788,041 - 282,744 788,041 1,070,785
TN Memphis/4175 Winchester 233,054 661,583 - 233,054 661,583 894,637
TN Memphis/American Way 326,495 911,122 - 326,495 911,122 1,237,617
TN Memphis/6390 Winchester 348,906 976,683 - 348,906 976,683 1,325,589
TN Collierville/W Poplar 1,122,353 2,372,249 - 1,122,353 2,372,249 3,494,602
TN Antioch/2757 Murfreesboro 2,558,791 1,299,380 3,531,925 - 1,299,380 3,531,925 4,831,305
TN Memphis/Shelby Oaks 446,424 1,219,883 - 446,424 1,219,883 1,666,307
TX Ft. Worth Avenue 393,893 1,076,836 171,651 393,893 1,248,487 1,642,380
TX Euless 352,715 961,974 211,828 359,330 1,167,187 1,526,517
TX North Freeway 676,958 1,838,633 144,816 687,758 1,972,649 2,660,407
TX South Freeway 433,769 1,181,121 134,458 441,599 1,307,749 1,749,348
TX White Settlement 920,149 2,496,150 1,130,950 1,370,309 3,176,940 4,547,249
TX Airport Freeway 616,535 1,678,683 216,464 616,535 1,895,147 2,511,682
TX Midway 851,959 2,310,475 1,169,046 1,169,859 3,161,621 4,331,480
TX Dallas/Preston 1,194,744 3,245,423 24,418 1,194,744 3,269,841 4,464,585
TX Bedford 923,948 2,525,303 69,516 927,192 2,591,575 3,518,767
TX Spring/I-45 North 1,110,728 3,005,855 27,163 1,113,972 3,029,774 4,143,746
TX Sugarland/Old Mill Rd 675,660 1,830,545 34,313 680,187 1,860,331 2,540,518
TX Dallas/N Dallas Pkwy 894,127 2,446,468 - 894,127 2,446,468 3,340,595
TX Alvin/Mustang Road 371,866 1,082,427 - 371,866 1,082,427 1,454,293
TX Clute/Brazos Park Drive 614,354 1,665,736 - 614,354 1,665,736 2,280,090
TX Houston/South Main 1,105,840 2,992,930 - 1,105,840 2,992,930 4,098,770
UT Orem 629,867 1,722,550 67,696 629,867 1,790,246 2,420,113
UT Sandy 949,065 2,573,696 41,152 949,065 2,614,848 3,563,913
UT West Valley 576,248 1,579,605 15,162 576,248 1,594,767 2,171,015
VA Fairfax Station 1,019,015 2,115,385 273,467 1,129,576 2,278,291 3,407,867
VA Chantilly 882,257 2,395,841 671,067 882,257 3,066,908 3,949,165
VA Clarendon 1,187,575 5,201,724 236,111 1,187,575 5,437,835 6,625,410
VA Reston 551,285 2,326,986 33,731 551,285 2,360,717 2,912,002
VA Falls Church 1,226,409 3,348,761 78,093 1,226,736 3,426,527 4,653,263
VA Willow Lawn 1,516,115 4,105,846 38,535 1,519,359 4,141,137 5,660,496
VA Stafford/Jefferson Davis 751,398 2,035,961 49,042 755,666 2,080,735 2,836,401
VA Fredericksburg/Jefferson 668,526 1,812,040 32,697 672,328 1,840,935 2,513,263
VA Charlottesville/Seminole 748,988 2,029,716 31,962 752,232 2,058,434 2,810,666
VA Fredericksburg/Plank Rd 846,358 2,287,063 39,314 849,538 2,323,197 3,172,735
VA Alexandria/N Henry St 2,424,650 6,555,535 - 2,424,650 6,555,535 8,980,185
VA Falls Church/Hollywood Rd 2,209,059 5,972,642 - 2,209,059 5,972,642 8,181,701
WA Vancouver/78th St 753,071 2,045,377 46,678 756,315 2,088,811 2,845,126
===============================================================================================
41,734,534 334,788,635 873,331,114 34,744,690 339,939,432 902,925,007 1,242,864,439
===============================================================================================
</TABLE>
Depreciable
Life of
Accumulated Year Placed Building
State Property Name Depreciation in Service Component
- ------------------------------------------------------------------------
AL Vestavia (178,780) 1994 40
AL Birmingham/Hwy 28 (27,554) 1996 40
AZ 24th Street (133,436) 1994 40
AZ Oracle (154,406) 1994 40
AZ 22nd Street (141,854) 1994 40
AZ East Phoenix (75,868) 1995 40
AZ Tempe (147,536) 1995 40
AZ Cave Creek (128,183) 1995 40
AZ Alma School (111,586) 1996 40
AZ Metro-21st/Peoria-Phoenix (66,700) 1996 40
AZ 7th St/Indian Sch-Phoenix (57,717) 1996 40
AZ Phoenix/32nd Street (124,329) 1996 40
AZ Mesa/Country Club (45,511) 1996 40
AZ Mesa/East Main St (68,319) 1996 40
AZ Phoenix/Bell Road (91,617) 1996 40
AZ Tucson/S Santa Clara Ave (28,773) 1997 40
AZ Phoenix/N 43rd Avenue (7,447) 1997 40
AZ Phoenix/N 25th Avenue (3,102) 1997 40
AZ Phoenix/2331 W Ind Sch (3,104) 1997 40
AZ Mesa/N Power Rd (2,602) 1997 40
AZ Mesa/3026 S Ctry Club (3,085) 1997 40
CA Miramar Self (107,129) 1994 40
CA Miramar Business (343,590) 1994 40
CA Marina Del Rey (505,396) 1994 40
CA Covina (288,667) 1994 40
CA Norwalk (347,265) 1994 40
CA Campbell (229,219) 1994 40
CA Monterey I & II (360,838) 1994 40
CA Palo Alto (149,736) 1994 40
CA San Jose (271,872) 1994 40
CA Santa Cruz (244,973) 1994 40
CA Scotts Valley (150,430) 1994 40
CA Santa Clara (251,356) 1995 40
CA Watsonville (106,391) 1994 40
CA Panorama City (221,859) 1994 40
CA Westminster (208,491) 1994 40
CA Point Loma (450,223) 1994 40
CA Rialto (135,133) 1995 40
CA Yucaipa (82,372) 1995 40
CA Fallbrook (83,135) 1995 40
CA Hemet (89,193) 1995 40
CA Victorville (93,681) 1995 40
CA San Bernardino/Baseline (233,654) 1995 40
CA Colton (102,439) 1995 40
CA San Marcos (67,060) 1995 40
CA Capitola (147,767) 1995 40
CA Oceanside (239,508) 1995 40
CA San Bernardino/Waterman (119,383) 1995 40
CA Santee (136,877) 1995 40
CA Santa Ana (205,089) 1995 40
CA Garden Grove (183,257) 1995 40
CA City of Industry (148,808) 1995 40
CA Chatsworth (281,501) 1995 40
CA Palm Springs/Tamarisk (145,440) 1995 40
CA Moreno Valley (75,171) 1995 40
CA San Bern/23rd St (106,119) 1995 40
CA San Bern/Mill Ave (62,336) 1995 40
CA Highlands (97,078) 1995 40
CA Redlands (111,687) 1995 40
CA Palm Springs/Gene Autry (111,375) 1995 40
CA Thousand Palms (100,730) 1996 40
CA Salinas (80,742) 1996 40
CA Whittier (114,500) 1996 40
CA Florin/Freeport-Sacrament (95,150) 1996 40
CA Sunrise/Sacramento (89,305) 1996 40
CA Santa Rosa (142,535) 1996 40
CA Huntington Beach (91,799) 1996 40
CA La Puente/Valley Blvd (99,801) 1996 40
CA Pacheco/First Ave North (112,658) 1996 40
CA Huntington Bch II/McFadden (90,213) 1996 40
CA Hawaiian Gardens/Norwalk (176,305) 1996 40
CA Sacramento/Auburn Blvd (55,789) 1996 40
CA Vacaville/Bella Vista (44,750) 1997 40
CA Sacramento/Perry (33,717) 1996 40
CA Cypress/Lincoln Avenue (46,236) 1997 40
CA Hollywood/N Vine St (90,588) 1997 40
CA Los Angeles/Fountain Ave (45,777) 1997 40
CA Long Beach/W Wardlow Rd (53,895) 1997 40
CA Riverside/Arlington Ave (29,891) 1997 40
CA Orange/S Flower St (63,012) 1997 40
CA Huntington Bch/Warner Ave (132,272) 1997 40
CA Anaheim/W Penhall Way (40,091) 1997 40
CA Santa Ana/W Fifth St (32,632) 1997 40
CA Long Beach/E Carson St (59,521) 1997 40
CA Long Beach/W Artesia Blvd (82,405) 1997 40
CA El Segundo/El Segundo Blv (82,537) 1997 40
CA Gardena/E Alondra Blvd (44,159) 1997 40
CA Pico Rivera/E Slauson Ave (73,225) 1997 40
CA Whittier/Comstock (49,876) 1997 40
CA Baldwin Park/Garvey Ave (23,432) 1997 40
CA Glendora/E Arrow Hwy (35,888) 1997 40
CA Pomona/Ridgeway (35,108) 1997 40
CA Riverside/Fairgrounds St (29,899) 1997 40
CA Cathedral City/E Ramon Rd (60,980) 1997 40
CA Palm Springs/Radio Road (41,721) 1997 40
CA Campbell/187 E Sunnyoaks (10,891) 1997 40
CA Roseville/6th Street (4,758) 1997 40
CA Roseville/Junction Blvd (5,217) 1997 40
CA Spring Valley/Jamacha Rd (4,690) 1997 40
CO Broomfield/W 120th Ave (40,508) 1997 40
CO Lakewood/W Mississippi (23,500) 1997 40
CT Wethersfield (141,314) 1994 40
CT Enfield (129,293) 1994 40
CT East Hartford (191,365) 1995 40
CT Waterbury (80,141) 1996 40
CT Rocky Hill (138,042) 1996 40
CT Farmington (135,522) 1996 40
CT Stamford/Commerce Rd (35,725) 1997 40
DC U Street (362,048) 1994 40
DE Wilmington (556,273) 1989 40
FL Kendall (891,505) 1988 40
FL Ives Dairy (969,889) 1988 40
FL Longwood (534,034) 1988 40
FL Sarasota (508,818) 1988 40
FL WPB Southern (259,133) 1991 40
FL WPB II (263,688) 1991 40
FL Port Richey (165,551) 1994 40
FL Ft. Myers (135,502) 1994 40
FL North Lauderdale (284,527) 1994 40
FL Naples (148,515) 1994 40
FL Hallandale (317,563) 1995 40
FL Davie (365,364) 1995 40
FL Tampa/Adamo (153,048) 1995 40
FL SR 84 (Southwest) (305,057) 1995 40
FL Quail Roost (257,587) 1995 40
FL Tamiami (349,864) 1995 40
FL Highway 441 (2nd Avenue) (310,537) 1995 40
FL Miami Sunset (392,810) 1995 40
FL Doral (Archway) (298,998) 1995 40
FL Boca Raton (182,992) 1996 40
FL Ft Lauderdale (135,198) 1996 40
FL Coral Way (186,135) 1996 40
FL Miller Rd. (174,721) 1996 40
FL Harborview/Port Charlotte (98,631) 1996 40
FL Miami Gardens/441 (56,544) 1996 40
FL Miramar/State Rd 7 (203,133) 1996 40
FL Delray Bch/W Atlantic Blvd (37,206) 1996 40
FL West Palm/Okeechobee Blvd (88) 1997 40
FL Sarasota/N Washington Blvd (41,746) 1997 40
GA South Cobb (181,919) 1992 40
GA Lilburn (170,473) 1994 40
GA Eastpoint (212,155) 1994 40
GA Acworth (91,363) 1994 40
GA Western Hills (158,291) 1994 40
GA Stone Mountain (131,630) 1996 40
IL Prospect Heights/E Piper (50,817) 1997 40
IN Marion/W 2nd St (12,555) 1997 40
IN Indianapolis/N Illinois (2,166) 1997 40
IN Indianapolis/W 10th St (3,549) 1997 40
IN Indianapolis/Hawthorn Pk (7,272) 1997 40
IN Indianapolis/E 56th St (6,087) 1997 40
IN Indianapolis/E 42nd St (3,944) 1997 40
IN Indianapolis/E 86th St (2,477) 1997 40
IN Indianapolis/Beachway Dr (3,153) 1997 40
IN Indianapolis/Crawfordsvill (1,695) 1997 40
IN Indianapolis/Fulton Dr (1,977) 1997 40
IN Indianapolis/N Meridian (127) 1997 40
IN Indianapolis/Fry Rd (3,801) 1997 40
IN Greenwood/E Stop 11 Rd (4,673) 1997 40
IN Columbus/W 15th St (481) 1997 40
IN Columbus/Eastwood Dr (672) 1997 40
IN Clarksville/N Hallmark (498) 1997 40
IN Jefferson/E Highway 62 (1,017) 1997 40
IN Jeffersonville/E 10th St (1,894) 1997 40
IN New Albany/Grant Line Rd (1,257) 1997 40
IN Jeffersonville/W 7th St (2,056) 1997 40
IN Clarksville/Woodstock Dr (1,810) 1997 40
IN New Albany/Progress Blvd (4,561) 1997 40
KS Shawnee (146,160) 1994 40
KS Olathe (121,917) 1994 40
KS Overland Park (150,826) 1994 40
KS State Avenue (108,536) 1994 40
KY Louisville/Bardstown (42,652) 1997 40
KY Louisville/Dixie Highway (27,479) 1997 40
KY Louisville/Oaklawn Avenue (2,490) 1997 40
KY Louisville/Preston Hwy (9,884) 1997 40
KY Valley Station/Val Sta Rd (3,671) 1997 40
KY Louisville/Adams St (8,691) 1997 40
MA Worcester (139,633) 1994 40
MA Haverhill (131,041) 1994 40
MA New Bedford (174,211) 1994 40
MA Whitman (123,864) 1994 40
MA Brockton (139,802) 1996 40
MA Northborough (104,222) 1996 40
MA Nashua/Tyngsboro (128,795) 1996 40
MA South Easton (97,560) 1996 40
MA North Attleboro (94,349) 1996 40
MA Fall River (81,801) 1996 40
MA Salisbury (82,029) 1996 40
MA Raynham/Broadway (3,146) 1997 40
MD Annapolis/Route 50 (823,617) 1989 40
MD Silver Spring (947,648) 1989 40
MD Essex (447,254) 1990 40
MD Columbia (562,740) 1991 40
MD Rockville (335,582) 1994 40
MD Annapolis/Trout (376,597) 1994 40
MD Montgomery Village (292,211) 1994 40
MD Millersville (233,831) 1995 40
MD Waldorf (188,122) 1995 40
MD Rt 3/Millersville (60,613) 1996 40
MD Balto City/E Pleasant St (114,909) 1996 40
MD Wheaton/Georgia Avenue (14,223) 1997 40
MD SUSA Partnership L.P. (960,353) 1994 5
MI Lincoln Park (153,196) 1995 40
MI Tel-Dixie (116,658) 1995 40
MI Troy/Coolidge Highway (101,873) 1996 40
MI Grand Rapids/28th St SE (48,323) 1996 40
MI Grandville/Spartan Ind Dr (54,869) 1996 40
MI Linden/S Linden Rd (30,963) 1997 40
MI Farmington Hills/Gr Riv (722) 1997 40
MO Grandview (141,405) 1994 40
MO Raytown (105,132) 1994 40
NC Charlotte/Tryon St (106,498) 1996 40
NC Raleigh/Hillsborough St (80,060) 1996 40
NC Charlotte/Amity Rd (100,486) 1996 40
NC Fayetteville/MacArthur (32,039) 1997 40
NC Fayetteville/Rim Rd (24,977) 1997 40
NC Wilmington/Market St (29,489) 1997 40
NJ Pennsauken (236,134) 1994 40
NJ Lawnside (206,738) 1995 40
NJ Cherry Hill/Cuthbert (132,784) 1995 40
NJ Cherry Hill/Route 70 (114,394) 1995 40
NJ Pomona (55,311) 1996 40
NJ Mays Landing (40,930) 1996 40
NJ Hackensack/S River St (272,985) 1996 40
NJ Secaucus/Paterson Plank (215,725) 1996 40
NJ Harrison/Harrison Ave (63,092) 1996 40
NJ Orange/Oakwood Ave (179,668) 1996 40
NJ Flanders/Bartley Flanders (49,915) 1996 40
NJ Mt Laurel/Ark Road (31,895) 1997 40
NJ Ho Ho Kus/Hollywood Ave (101,409) 1997 40
NJ Millville/S Wade Blvd (1,852) 1997 40
NJ Williamstown/Glassboro Rd (2,912) 1997 40
NM Lomas (68,538) 1994 40
NM San Mateo (138,618) 1994 40
NM Montgomery (160,534) 1994 40
NM Legion (171,765) 1994 40
NM Ellison (164,097) 1994 40
NM Hotel Circle (87,096) 1994 40
NM Eubank (144,736) 1994 40
NM Coors (114,021) 1994 40
NM Osuna (157,425) 1994 40
NM East Central (76,742) 1994 40
NV Rainbow (197,396) 1994 40
NV Oakey (144,752) 1995 40
NV Tropicana (182,127) 1994 40
NV Sunset (212,826) 1994 40
NV Sahara (251,312) 1995 40
NV Charleston (91,781) 1995 40
NV Las Vegas-Sahara/Pioneer (129,069) 1996 40
NV Las Vegas/S Nellis Blvd (11,106) 1997 40
NY Coram/Bald Hill (203,066) 1996 40
NY Mahopac/Rt 6 and Lupi Ct (22,653) 1997 40
NY Kingston/Sawkill Rd (15,705) 1997 40
NY New Paltz/So Putt Corners (12,872) 1997 40
NY Saugerties/Route 32 (15,557) 1997 40
NY Amsterdam/Route 5 So (9,106) 1997 40
OH Akron/Chenoweth Rd (27,376) 1997 40
OH Streetsboro/Frost Rd (32,473) 1997 40
OH Franklin/Conover Dr (11,915) 1997 40
OH Kent/Cherry St (26,110) 1997 40
OH Amherst/Leavitt (21,025) 1997 40
OH East Lake/Lakeland Blvd (22,200) 1997 40
OH Mentor/Mentor Ave (52,358) 1997 40
OH Mentor/Heisley Road (18,575) 1997 40
OH Columbus/W Broad St (5,273) 1997 40
OH Columbus/S High St (4,528) 1997 40
OH Columbus/Innis Rd (9,649) 1997 40
OH Columbus/E Main St (3,934) 1997 40
OH Columbus/E Cooke Rd (5,128) 1997 40
OH Worthington/Reliance St (3,036) 1997 40
OH Delaware/State Rt 23 (494) 1997 40
OH Trotwood/Salem Bend Dr (6,185) 1997 40
OH Worthington/Alta View Blvd - 1997 40
OH Columbus/W Dublin-Grand - 1997 40
OH Dublin/Old Avery Road - 1997 40
OH Hilliard/Parkway Lane - 1997 40
OK Sooner Road (126,745) 1994 40
OK 10th Street (80,742) 1994 40
OK Moore (88,062) 1994 40
OK NW Expressway (101,126) 1994 40
OK Midwest City (119,752) 1994 40
OK Meridian (88,287) 1994 40
OK Air Depot (99,022) 1994 40
OK Peoria (102,633) 1995 40
OK 11th & Mingo (145,382) 1995 40
OK Skelly (38,625) 1995 40
OK Lewis (115,901) 1995 40
OK Sheridan (104,270) 1995 40
OK OKC/Roxbury Blvd (25,772) 1996 40
OK OKC/33rd Street (32,798) 1996 40
OK OKC/South Western (45,951) 1997 40
OK Tulsa/So Garnett Road (10,611) 1997 40
OR Hillsboro/229th Ave (124,206) 1996 40
OR Beaverton/Murray Ave (112,331) 1996 40
OR Aloha/185th Ave (136,973) 1996 40
PA Philadelphia (595,331) 1990 40
PA King of Prussia (253,934) 1995 40
PA Warminster (172,789) 1995 40
PA Allentown (119,308) 1995 40
PA Bethlehem (167,294) 1995 40
PA Norristown (113,997) 1996 40
PA Malvern/E Lancaster (6,498) 1997 40
PA West Chester/Downington (29,831) 1997 40
TN Summer (687,949) 1986 40
TN Union (462,302) 1987 40
TN Memphis/Mt Moriah (384,289) 1989 40
TN Antioch/Nashville (225,885) 1994 40
TN Keyport (Gateway) (100,605) 1994 40
TN Chattanooga (76,798) 1995 40
TN Memphis/Ridgeway (89,691) 1995 40
TN Winchester (1,613) 1997 40
TN Nashville/Lebanon Pike (145,448) 1996 40
TN Nashville/Haywood (40,217) 1996 40
TN Nashville/Murfreesboro (32,155) 1996 40
TN Memphis/2939 Poplar - 1997 40
TN Nashville/Trousdale (108,607) 1996 40
TN Nashville/Murfreesboro (94,099) 1996 40
TN Nashville/Old Hickory Rd (99,143) 1996 40
TN Antioch/Bell Road (67,175) 1996 40
TN Franklin/Liberty Pike (71,766) 1996 40
TN Memphis/5675 Summer Ave (19,297) 1997 40
TN Memphis/4705 Winchester (20,764) 1997 40
TN Memphis/Madison Avenue (9,536) 1997 40
TN Memphis/Raleigh-LaGrange (14,272) 1997 40
TN Memphis/4175 Winchester (12,115) 1997 40
TN Memphis/American Way (16,209) 1997 40
TN Memphis/6390 Winchester (17,180) 1997 40
TN Collierville/W Poplar (19,144) 1997 40
TN Antioch/2757 Murfreesboro (30,025) 1997 40
TN Memphis/Shelby Oaks (2,627) 1997 40
TX Ft. Worth Avenue (103,259) 1994 40
TX Euless (91,683) 1994 40
TX North Freeway (159,549) 1994 40
TX South Freeway (102,935) 1994 40
TX White Settlement (252,797) 1994 40
TX Airport Freeway (152,180) 1994 40
TX Midway (197,796) 1994 40
TX Dallas/Preston (178,783) 1995 40
TX Bedford (101,768) 1996 40
TX Spring/I-45 North (95,210) 1996 40
TX Sugarland/Old Mill Rd (55,077) 1996 40
TX Dallas/N Dallas Pkwy (52,624) 1997 40
TX Alvin/Mustang Road (24,508) 1997 40
TX Clute/Brazos Park Drive (97) 1997 40
TX Houston/South Main (6,229) 1997 40
UT Orem (148,284) 1994 40
UT Sandy (215,207) 1994 40
UT West Valley (84,807) 1995 40
VA Fairfax Station (227,045) 1993 40
VA Chantilly (223,800) 1994 40
VA Clarendon (202,594) 1996 40
VA Reston (99,178) 1996 40
VA Falls Church (203,739) 1995 40
VA Willow Lawn (138,045) 1996 40
VA Stafford/Jefferson Davis (63,044) 1996 40
VA Fredericksburg/Jefferson (55,251) 1996 40
VA Charlottesville/Seminole (61,940) 1996 40
VA Fredericksburg/Plank Rd (69,874) 1996 40
VA Alexandria/N Henry St (13,657) 1997 40
VA Falls Church/Hollywood Rd (12,443) 1997 40
WA Vancouver/78th St (78,430) 1996 40
==============
(44,955,154)
==============
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Storage USA, Inc.
Our report on the consolidated financial statements of Storage USA,
Inc. has been incorporated by reference in this Form 10-K from page 33 of the
1997 Annual Report to Shareholders of Storage USA, Inc. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedule included in this Form 10-K.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
January 30, 1998
Exhibit 21
Storage USA, Inc.
Subsidiaries
All subsidiaries are organized under Tennessee law unless otherwise indicated.
Direct
Storage USA Trust (Maryland)
SUSA Partnership, L.P.
Huron Acquisition, Inc.
Indirect
SUSA Management, Inc.
441 Mini-Storage Partners, Ltd. (Florida)
Buzzman Partners I Ltd. Partnership (Pennsylvannia)
Buzzman Partners II, Ltd. Partnership (Pennsylvannia)
Clarendon Storage Associates Ltd Partnership (Virginia)
Cole/Morgan, Ltd (Texas)
Dade County Mini-Storage Associates, Ltd. (Florida)
Parklawn Storage Partners, LP
Preston Self Storage, Ltd. (Texas)
Prospect Heights Self Storage, LLC (Illinois)
Southeast Mini-Storage Limited Partners (Florida)
Storage Partners of Okeechobee, Ltd (Florida)
Storage Partners of Paoli, LP
Storage USA Franchise Corp.
Storage USA of Palm Beach County Ltd. Partnership (Maryland)
Sunset Mini-Storage Partners, Ltd. (Florida)
SUSA Hackensack LP
SUSA Harrison LP
SUSA Hollywood, LP
SUSA Investments II, LLC (Virginia)
SUSA Investments I, LLC (Virginia)
SUSA Management, Inc.
SUSA Mesa L.P.
SUSA Nashville L.P.
SUSA Orange LP
SUSA Secaucus LP
SUSA/38th Avenue, Capitola LP (California)
SUSA/Poplar Partners, LP
Tamiami Mini-Storage Partners, Ltd. (Florida)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference into (A) the Registration
Statements of Storage USA, Inc. (the "Company") on Forms S-8 (Commission File
Nos. 33-80967, 33-93884, 33-93882, 33-86362, 333-29753 and 333-29773) and (B)
the Registration Statements of the Company on Forms S-3 (Commission File Nos.
333-10903, 333-4556, 33-80965, 33-98142, 33-93886, 33-91302, 333-25821,
333-21991, 333-31145 and 333-44641), of (1) our report dated January 30, 1998,
except for Note 16, as to which the date is March 18, 1998, on our audits of the
consolidated financial statements of the Company as of December 31, 1997 and
1996 and for each of the three years in the period ended December 31, 1997,
which report is incorporated by reference in the Company's 1997 Form 10-K and
(2) our report dated January 30, 1998, on the financial statement schedule of
the Company as of December 31, 1997, which report is included in the Company's
1997 Form 10-K.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
March 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
These numbers pertain 1997.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,172
<SECURITIES> 0
<RECEIVABLES> 60,719
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 61,891
<PP&E> 1,242,864
<DEPRECIATION> 44,955
<TOTAL-ASSETS> 1,259,800
<CURRENT-LIABILITIES> 89,776
<BONDS> 474,609
0
0
<COMMON> 276
<OTHER-SE> 695,139
<TOTAL-LIABILITY-AND-EQUITY> 1,259,800
<SALES> 157,798
<TOTAL-REVENUES> 160,570
<CGS> 0
<TOTAL-COSTS> 78,796
<OTHER-EXPENSES> 1,247
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,111
<INCOME-PRETAX> 62,416
<INCOME-TAX> 0
<INCOME-CONTINUING> 62,416
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62,416
<EPS-PRIMARY> 2.33
<EPS-DILUTED> 2.31
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
These numbers pertain to the first three quarters of 1997.
</LEGEND>
<RESTATED>
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 9,569 9,655 4,103
<SECURITIES> 0 0 0
<RECEIVABLES> 15,264 21,016 41,450
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 24,833 30,671 45,553
<PP&E> 898,793 1,025,081 1,065,683
<DEPRECIATION> 30,620 34,251 39,380
<TOTAL-ASSETS> 893,006 1,021,501 1,071,856
<CURRENT-LIABILITIES> 90,452 112,718 128,458
<BONDS> 140,179 242,561 274,793
0 0 0
0 0 0
<COMMON> 272 272 274
<OTHER-SE> 662,103 665,950 668,331
<TOTAL-LIABILITY-AND-EQUITY> 893,006 1,021,501 1,071,856
<SALES> 33,476 71,341 113,267
<TOTAL-REVENUES> 33,917 72,568 115,480
<CGS> 0 0 0
<TOTAL-COSTS> 16,835 35,514 56,420
<OTHER-EXPENSES> 828 (589) 666<F1>
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 3,269 6,763 11,604
<INCOME-PRETAX> 12,985 30,880 46,790
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> 12,985 30,880 46,790
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 12,985 30,880 46,790
<EPS-PRIMARY> 0.52 1.18 1.76
<EPS-DILUTED> 0.51 1.17 1.74
<FN>
Included in other expenses are minority interest expense, gain on
exchange of self-storage facilities and interest income.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
These numbers pertain to 1996
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1996
<CASH> 3,011 3,318 3,169 1,323
<SECURITIES> 0 0 0 0
<RECEIVABLES> 11,165 7,734 8,942 14,853
<ALLOWANCES> 0 0 0 0
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 14,176 11,052 12,111 16,176
<PP&E> 538,163 642,650 730,420 855,642
<DEPRECIATION> 28,031 19,637 22,880 26,573
<TOTAL-ASSETS> 535,308 634,065 719,651 845,245
<CURRENT-LIABILITIES> 47,183 56,718 60,524 71,663
<BONDS> 70,777 161,039 84,110 198,454
0 0 0 0
0 0 0 0
<COMMON> 195 195 246 247
<OTHER-SE> 417,153 416,113 574,771 574,881
<TOTAL-LIABILITY-AND-EQUITY> 535,308 634,065 719,651 845,245
<SALES> 20,819 44,589 73,395 105,091
<TOTAL-REVENUES> 21,333 45,689 75,124 107,309
<CGS> 0 0 0 0
<TOTAL-COSTS> 7,426 19,584 34,517 53,672
<OTHER-EXPENSES> 3,850 4,345 4,571 1,867 <F1>
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 1,665 3,223 5,849 8,244
<INCOME-PRETAX> 8,392 18,537 30,187 43,526
<INCOME-TAX> 0 0 0 0
<INCOME-CONTINUING> 8,392 18,537 30,187 43,526
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 8,392 18,537 30,187 43,526
<EPS-PRIMARY> 0.47 0.99 1.54 2.09
<EPS-DILUTED> 0.47 0.98 1.52 2.07
<FN>
Included in other expenses are minority interest expense, gain on exchange of self-storage facilities and interest income.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
These numbers pertain to 1995
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,006
<SECURITIES> 0
<RECEIVABLES> 11,783
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,789
<PP&E> 509,297
<DEPRECIATION> 14,561
<TOTAL-ASSETS> 509,525
<CURRENT-LIABILITIES> 37,063
<BONDS> 114,275
0
0
<COMMON> 176
<OTHER-SE> 358,011
<TOTAL-LIABILITY-AND-EQUITY> 509,525
<SALES> 66,455
<TOTAL-REVENUES> 68,007
<CGS> 0
<TOTAL-COSTS> 34,525
<OTHER-EXPENSES> 1,325 <F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,004
<INCOME-PRETAX> 29,153
<INCOME-TAX> 0
<INCOME-CONTINUING> 29,153
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,153
<EPS-PRIMARY> 1.87
<EPS-DILUTED> 1.86
<FN>
Included in other expenses are minority interest expense and interest income.
</FN>
</TABLE>
